DEPARTMENT OF CONSUMER AND INDUSTRY SERVICES  
INSURANCE BUREAU  
LIFE INSURANCE CONTRACTS ON VARIABLE BASIS  
(By authority conferred on the commissioner of insurance by section 210 of Act No. 218 of  
the Public Acts of 1956, as amended, being S500.210 of the Michigan Compiled Laws)  
R 500.841 Definitions.  
Rule 1. As used in these rules:  
(a) "Affiliate" of an insurer means any of the following:  
(i) Any person, directly or indirectly, controlling, controlled by, or under common  
control with, such insurer.  
(ii) Any person who regularly furnishes investment advice to an insurer with respect to its  
variable life insurance separate accounts for which a specific fee or commission is charged.  
(iii) Any person who is a director, officer, partner, or employee, or a member of the  
immediate family of any person who is a director, officer, partner or employee of any person  
described in paragraph (i) or (ii) of this subdivision.  
(b) "Agent" means any person, corporation, partnership, or other legal entity which is  
licensed by this state as a life insurance agent.  
(c) "Assumed investment rate" means the rate of investment return which would be  
required to be credited to a variable life insurance policy, after deduction of charges for  
taxes, investment expenses, and mortality and expense guarantees, to maintain the variable  
death benefit equal, at all times, to the amount of the death benefit, other than incidental  
insurance benefits, which would be payable under the plan of insurance if the death benefit did  
not vary according to the investment experience of the separate account.  
(d) "Benefit base" means the amount to which the net investment return is applied.  
(e) "Control," including the terms "controlling," "controlled by," and "under common  
control with," means the possession, direct or indirect, of the power to direct, or cause the  
direction of, the management and policies of a person, whether through the ownership of  
voting securities, by contract other than a commercial contract for  
goods  
or  
nonmanagement services, or otherwise, unless the power is the result of an official position  
with, or corporate office held by, the person. Control shall be presumed to exist if any person,  
directly or indirectly, owns, controls, holds with the power to vote, or holds proxies  
representing more than 10% of the voting securities of any other person. This presumption  
may be rebutted by a showing, to the satisfaction of the commissioner, that control does  
not exist in fact. The commissioner may determine, after furnishing all persons in interest  
notice and opportunity to be heard and making specific findings of fact to support such  
determination, that control exists in fact, notwithstanding the absence of a presumption to  
that effect.  
(f) "Flexible premium policy" means any variable life insurance policy other than a  
scheduled premium policy as specified in subdivision (1) of this rule.  
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(g) "General account" means all assets of the insurer other than assets in separate accounts  
established pursuant to section 925 of Act No. 218 of the Public Acts of 1956, as amended,  
being S500.925 of the Michigan Compiled Laws, or pursuant to the corresponding section  
of the insurance law of the state of domicile of a foreign or alien insurer, whether or not for  
variable life insurance.  
(h) "Incidental insurance benefit" means all insurance benefits in a variable life  
insurance policy, other than the variable death benefit and the minimum death benefit,  
including, but not limited to, any of the following:  
(i) Accidental death and dismemberment benefits.  
(ii) Disability benefits.  
(iii) Guaranteed insurability options.  
(iv) Family income.  
(v) Term riders.  
(i) "Minimum death benefit" means the amount of the guaranteed death benefit, other  
than incidental insurance benefits, payable under a variable life insurance policy regardless  
of the investment performance of the separate account.  
(j) "Net investment return" means the rate of investment return actually credited to a  
variable life insurance policy, after deduction of any charges in accordance with the terms  
of the policy.  
(k) "Policy processing day" means the day on which charges authorized in the policy are  
deducted from the policy's cash value.  
(l) "Scheduled premium policy" means any variable life insurance policy under which  
both the amount and timing of premium payments are fixed by the insurer.  
(m) "Separate account" means a separate account for variable life insurance  
established under section 925 of Act No. 218 of the Public Acts of 1956, as amended, being  
S500.925 of the Michigan Compiled Laws, or pursuant to the corresponding section of the  
insurance law of the state of domicile of a foreign or alien insurer.  
(n) "Variable death benefit" means the amount of the death benefit, other than  
incidental insurance benefits, which is payable under a variable life insurance policy  
dependent on the investment performance of the separate account and which the insurer  
would have to pay in the absence of the minimum death benefit.  
(o) "Variable life insurance policy" means any individual policy which provides for life  
insurance with the amount or duration of the death benefit varying according to the  
investment experience of any separate account or accounts established and maintained by  
the insurer as to such policy, as provided for in section 925 of Act No. 218 of the Public  
Acts of 1956, as amended, being S500.925 of the Michigan Compiled Laws, or pursuant  
to the corresponding section of the insurance law of the state of domicile of a foreign or alien  
insurer.  
History: 1979 AC; 1988 AACS.  
R 500.843 Qualification of insurer to issue life insurance contracts on variable basis.  
Rule 3. All of the following requirements are applicable to all insurers that are seeking  
authority to issue variable life insurance in this state or that have authority to issue variable life  
insurance in this state:  
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(a) An insurer shall not deliver or issue for delivery in this state any variable life insurance  
policy unless both of the following requirements are satisfied:  
(i) The insurer has a certificate of authority to engage in the life insurance business in  
this state.  
(ii) The insurer has obtained the written approval of the commissioner for the issuance of  
variable life insurance policies in this state.  
(b) The commissioner shall grant written approval for the issuance of variable life  
insurance only after he or she has found that all of the following requirements are satisfied:  
(i) The plan of operation for the issuance of variable life insurance policies is not  
unsound.  
(ii) The general character, reputation, and experience of the management and those  
persons or firms proposed to supply consulting, investment, administrative, or custodial  
services to the insurer are such as to reasonably assure competent operation of the  
variable life insurance business of the insurer in this state.  
(iii) The present and foreseeable future financial condition of the insurer and its  
method of operation in connection with the issuance of such policies are not likely to render  
its operation hazardous to the public or its policyholders in this state. The commissioner  
shall consider all of the following factors:  
(A) The history of operation and financial condition of the insurer.  
(B) The qualifications, fitness, character, responsibility, reputation, and experience of the  
officers and directors and other management of the insurer and those persons or firms  
proposed to supply consulting, investment, administrative, or custodial services to the  
insurer.  
(C) The applicable law and regulations under which the insurer is authorized in its  
state of domicile to issue variable life insurance policies. The state of entry of an alien  
insurer shall be deemed its state of domicile for this purpose.  
(D) If the insurer is a subsidiary of, or is affiliated by common management or  
ownership with, another company, its relationship to such other company and the degree to  
which the requesting insurer, as well as the other company, meets these standards.  
(E) Other relevant information.  
(c) Before any insurer shall deliver or issue for delivery any variable life insurance policy  
in this state, it shall submit all of the following information for the consideration of the  
commissioner in making the determination required by subdivision (b) of this rule:  
(i) Copies and a general description of the variable life insurance policies it intends to  
issue.  
(ii) A general description of the methods of operation of the variable life insurance  
business of the insurer, including methods of distribution of policies, and the names of those  
persons or firms proposed to supply consulting, investment, administrative, distributive,  
or custodial services to the insurer.  
(iii) With respect to any separate account maintained by an insurer for any variable life  
insurance policy, a statement of the investment policy the insurer intends to follow for the  
investment of the assets held in such separate account. The statement shall include a  
description of the investment objective and orientation intended for the separate account.  
(iv) A description of any investment advisory services contemplated as required by R  
500.862.  
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(v) If requested by the commissioner, a copy of the statutes and regulations of the  
state of domicile of the insurer under which it is authorized to issue variable life insurance  
policies.  
(vi) A certification by the domiciliary regulatory authority that the insurer is in  
compliance with the laws and regulations applicable to variable life insurance.  
(vii) If requested by the commissioner, biographical data of officers and directors of the  
insurer, which shall be submitted on the national association of insurance commissioners  
uniform biographical data form.  
(viii) A statement describing the procedures for changing the investment policy of any  
separate account maintained by an insurer for any variable life insurance policy.  
(ix) A statement of the insurer's actuary describing the mortality and expense risks which  
the insurer will bear under the policy.  
(x) Such additional information as the commissioner may require.  
(d) After the commissioner finds that the law or regulation in the place of domicile of a  
foreign company provides protection to the policyholders and the public which is substantially  
equal to that provided by these rules, the commissioner may determine that compliance  
with such law or regulation of the domiciliary constitutes compliance with these rules.  
History: 1979 AC; 1988 AACS.  
R 500.844 Standards of suitability.  
Rule 4. (1) Every insurer seeking approval to enter into the variable life insurance  
business in this state shall establish, maintain, and file with the commissioner a written  
statement specifying the standards of suitability to be used by the insurer. Such standards of  
suitability shall be binding on the insurer and those to whom the standards of suitability refer  
and shall specify that no recommendation shall be made to an applicant to purchase a  
variable life insurance policy and that no variable life insurance policy shall be issued  
in the absence of reasonable grounds to believe that the purchase of such policy is suitable  
for such applicant on the basis of information furnished after reasonable inquiry of such  
applicant concerning the applicant's insurance and investment objectives, financial  
situation and needs, and any other information known to the insurer or to the agent  
making the recommendation.  
(2) "Suitability" means the likelihood that the purchase of variable life insurance is  
reasonably consistent with all of the following:  
(a) The expressed insurance objectives and needs as perceived by the prospective  
insured.  
(b) The reasonable objectives and needs of the prospective insured as determined  
objectively by a professional agent after a diligent reasonable inquiry into relevant financial,  
family, and other background information concerning the prospective insured.  
(c) The potential that the prospective insured will persist with the policy for such a  
period of time that the insurer's acquisition costs are amortized over a reasonable period of  
time.  
(3) All pertinent factors, including, but not limited, to all of the following shall be  
considered when determining suitability:  
(a) Age.  
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(b) Earnings.  
(c) Marital status.  
(d) Number and age of dependents.  
(e) The value of savings and other assets.  
(f) And current life insurance program.  
History: 1979 AC; 1988 AACS.  
R 500.845 Rescinded.  
History: 1979 AC; 1997 AACS  
R 500.845a Sales illustrations.  
Rule 5a. Any sales illustration shown or furnished in connection with the sale of  
variable life insurance shall conform to all of the following requirements:  
(a) All of the following requirements apply only to the variable portion of contracts with  
fixed and variable funding options:  
(i) The hypothetical interest rates used to illustrate accumulated policy values shall be  
the rates which would actually be credited to the policy after deduction for taxes, management  
fees, and any other contract charges.  
(ii) Illustrations of accumulated policy values shall include 1 illustration based  
solely on the policy contract guarantees.  
Such illustration shall include, among other  
guarantees, the effect of the maximum mortality and administrative charges specified in the  
contract.  
(iii) Except for illustrations contained in the prospectus, the pattern of premium payments  
used in an illustration shall be the initial pattern requested by the proposed policyholder at  
inception or upon changes in fact amount requested by the policyholder.  
(iv) If the illustrated policy contact provides for a variety of investment options, the  
illustration may use an asset charge which is reasonably representative of a typical blend of  
such options or it may use the asset charge of a particular option.  
(v) The illustration shall disclose the transaction charges which will be levied against the  
contract because of transactions requested in accordance with rights and privileges  
specified in the policy contract.Any charge for the exercise of a right or privilege upon  
which the illustration is based shall be reflected in the illustrated values. The nature of any  
such charges shall be disclosed in a clear statement accompanying such illustrations.  
(vi) A clear statement shall be made following the table of illustrated accumulated policy  
values that use of hypothetical investment results does not in any way represent actual results  
or suggest that such results will be achieved and shall indicate that the policy values which  
actually arise will differ from those shown when the actual investment results differ from  
the hypothetical rates illustrated.  
shall be clearly disclosed.  
Assumptions  
upon  
which illustrations are based  
(vii) Any sales illustration to a prospective policyholder shall accurately reflect the  
policy being presented. Misleading statements or captions or other misrepresentations are  
prohibited.  
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(viii) The requested sales illustration shall be printed clearly and legibly on hard paper  
copy. An illustration displayed on a computer screen may be used in addition to, but not as a  
substitute for, hard paper copy.  
(b) All of the following requirements apply to variable life insurance contracts offering  
both fixed and variable funding options:  
(i) An illustration of the variable funding option shall comply with these rules.  
(ii) If an illustration of the fixed funding option is shown, accumulated policy  
values shall be shown on the basis of guaranteed rates.One or more additional rates may also be  
shown, but such rates shall not exceed current rates.  
(iii) A summary illustration may be given in which results from comparable  
illustrated and hypothetical interest rates are combined. Such summary shall cross-reference to  
the accompanying separate illustrations of the fixed and variable funding options.  
(c) Nothing in this rule shall prohibit the distribution, to the prospective policyholder,  
of illustrations in addition to those required by R 500.863 if, except for the requirements of  
subdivision (a)(iii) of this rule which apply to required illustrations under R 500.863,  
such additional illustrations comply with the standards set forth in these rules.  
History: 1988 MR 7, Eff.  
R 500.846 Service contracts between insurer and supplier; requirements.  
Rule 6. Any contract between an insurer and suppliers of consulting, investment,  
administrative, sales, marketing, custodial, or other services which are material with respect to  
variable life insurance operations shall be in writing and provide that the supplier of such  
services shall furnish the commissioner with any information or reports in connection with  
such services which the commissioner may request in order to ascertain whether the  
variable life insurance operations of the insurer are being conducted in a manner consistent  
with these rules and any other applicable law or regulations; shall be fair and equitable  
to all policyholders of the insurer in this state; shall not relieve the insurer from any  
responsibilities or obligations imposed upon the operations of its variable life insurance  
business by this rule or any law or regulation.  
History: 1979 AC.  
R 500.847 Reports to the commissioner.  
Rule 7. (1) Any insurer authorized to transact the business of variable life insurance in  
this state shall submit to the commissioner, in addition to any other materials which may be  
required by this rule or any other applicable laws or regulations, all of the following:  
(a) An annual statement of the business of its variable life insurance separate account or  
accounts in such form as shall be prescribed by the commissioner.  
(b) Prior to the use in this state, a copy of any information furnished to applicants as  
provided for in R 500.863.  
(c) Prior to the use in this state, a copy of any of the forms required by subdivision (a) of R  
500.865 and a copy of any of the reports to policyholders as used to satisfy subdivision  
(b) of R 500.865.  
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(d) Such additional information concerning its variable life insurance operations or its  
variable life insurance separate accounts as the commissioner shall deem necessary.  
(2) Any material submitted to the commissioner under this rule shall be disapproved if it  
is found to be false, misleading, incomplete, deceptive, or inaccurate in any material respect  
and, if previously distributed, the commissioner shall require the distribution of an amended  
report, which shall previously have been approved after submission pursuant to this  
subrule.  
(3) Any material required to be filed with the commissioner, or approved by him, shall be  
subject to disapproval if at any time it is found by him not to comply with the standards  
established by this rule.  
History: 1979 AC.  
R 500.848 Variable life insurance policies and related documents; forms; filing  
and approval; exception.  
Rule 8. (1) All forms of variable life insurance policies, riders, endorsements,  
applications, and other related documents which are to be attached to and made a part of  
the policy shall be filed with the commissioner and shall be subject to approval before  
delivery or issuance for delivery in this state. The procedures and requirements for filing and  
approval shall be, to the extent appropriate and not inconsistent with this rule, the same as  
those otherwise applicable to other life insurance policies.  
(2) The commissioner may approve variable life insurance policies and related forms  
with provisions the commissioner deems to be not less favorable to the policyholder and  
the beneficiary than those required by this rule.  
(3) The requirements of R 500.849(a) do not apply to variable life insurance policies  
and related forms issued in connection with corporate pension and profit-sharing plans and  
retirement income plans which are exempt pursuant to section 3(c)(11) of the investment  
company act of 1940, 15 U.S.C. S80a-3(c)(11), and, where applicable, other provisions of  
the federal securities laws because of their tax qualified status.  
History: 1979 AC; 1988 AACS.  
R 500.849 Variable life insurance policy; benefit and design requirements.  
Rule 9. Variable life insurance policies delivered or issued for delivery in this state  
shall comply with all of the following minimum requirements:  
(a) The mortality and expense risk shall be borne by the insurer. The mortality and  
expense charges shall be subject to the maximums stated in the contract. If mortality and  
expense charges are lower than the guaranteed maximums, the difference shall be  
credited to the policy account at least annually.  
(b) For scheduled premium policies, a minimum death benefit shall be provided in an  
amount at least equal to the initial face amount of the policy if premiums are paid when  
due, subject to the provisions of R 500.851(b).  
(c) The policy shall reflect the investment experience of the 1 or more variable life  
insurance separate accounts established and maintained by the insurer. The insurer shall  
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demonstrate that the reflection of investment experience in the variable life insurance policy  
is actuarially sound.  
(d) Each variable life insurance policy shall be credited with the full amount of the net  
investment return applied to the benefit base.  
(e) Changes in variable death benefits of each variable life insurance policy shall be  
determined at least annually.  
(f) The policy value and the cash surrender value of each variable life insurance policy  
shall be determined at least monthly. The method of computation of cash values and other  
nonforfeiture benefits, as described either in the policy or in a statement filed with the  
commissioner, shall be in accordance with actuarial procedures that recognize the variable  
nature of the policy. The method of computation shall be such that, if the net investment return  
credited to the policy at all times from the date of issue is equal to the assumed investment rate  
with premiums and benefits determined accordingly under the terms of the policy, then the  
resulting cash values and other nonforfeiture benefits shall be at least equal to the minimum  
values required by section 4060 of Act No. 218 of the Public Acts of 1956, as amended, being  
S500.4060 of the Michigan Compiled Laws, for a general account policy with such premiums  
and benefits. The assumed investment rate shall not exceed the maximum interest rate  
permitted under the standard nonforfeiture law of this state. The method of computation may  
disregard incidental minimum guarantees as to the dollar amounts payable. Incidental  
minimum guarantees include, for example, but are not to be limited to, a guarantee that the  
amount payable at death or maturity shall be at least equal to the amount that otherwise would  
have been payable if the net investment return credited to the policy at all times from the date  
of issue had been equal to the assumed investment rate.  
(g) The policy value, cash value, and other nonforfeiture benefits of each variable life  
insurance policy shall be determined in accordance with the provisions of R 500.849a.  
(h) The computation of values required for each variable life insurance policy may be  
based upon such reasonable and necessary  
commissioner.  
approximations  
as are approved by the  
History: 1979 AC; 1988 AACS.  
R 500.849a Variable life nonforfeiture values.  
Rule 9a. (1) Minimum cash surrender values for variable life insurance policies shall be  
determined separately for the basic policy and any benefits and riders for which premiums  
are paid separately. The methods pertain to a basic policy and any benefits and riders for  
which premiums are not paid separately.  
(2) The method of computation of minimum cash surrender values for variable life  
policies shall be determined using the retrospective method, the prospective method, or the  
maximum charge method.  
(a) When variable life policy funds are solely in 1 or more separate accounts, the  
retrospective method or the maximum charge method may be used to compute minimum  
cash surrender values.  
(b) In case of a combination general account and separate account product providing  
for 1 basic amount of insurance but with the policy value allocated among the general  
account and 1 or more separate accounts and with mortality charges applicable to the  
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difference between the death benefit and the policy value, the applicable cash surrender  
value procedures used may be either the maximum charge method or the retrospective  
method. The method used shall be applicable to both the general account and the separate  
account portions and all of the following provisions shall apply:  
(i) The policy shall specify a guaranteed rate of interest for the portion of the fund  
accumulated in the general account.  
(ii) Additions or amounts derived from more favorable  
interest, mortality, and  
expense than those guaranteed in the policy on the general account fund and credited within  
12 months before surrender may be subject to forfeiture upon surrender.  
(iii) At least once each year the insured has the option to transfer all separate account  
funds to the general account and apply his or her cash surrender value to purchase a  
guaranteed fixed paid-up benefit.  
(iv) Any amount of paid-up whole life insurance provided under paragraph  
(iii) of this subdivision shall be at least as great as that computed using the mortality  
table on which the maximum mortality charges have been calculated and the interest rate  
guaranteed in the policy. Any period of extended term insurance provided under paragraph  
(iii) of this subdivision shall be at least as long as that using an extended term insurance  
mortality table appropriate to the mortality table for the maximum mortality charges and  
the interest rate guaranteed in the policy.  
(v) The annual report shall note the availability of the option under paragraph (iii) of  
this subdivision.  
(3) As used in this rule:  
(a) "Accumulation rate" means the net investment return or any interest credits applied  
towards the policy value.  
(b) "Cash surrender value" means the net cash surrender value plus any amounts  
outstanding as policy loans.  
(c) "Net cash surrender value" means the maximum amount payable to the policy owner  
upon surrender.  
(d) "Policy value" means the amount to which separately identified interest credits or  
investment return and mortality, expense, or other charges are made under a variable life  
insurance policy.  
(e) "Valuation rate" means the higher of the assumed investment rate (AIR) or  
guaranteed interest included in the policy, if any, otherwise the highest valuation interest rate  
allowed under the standard nonforfeiture law.  
(4) All of the following provisions apply to use of the retrospective method:  
(a) The minimum cash surrender value before adjustment for indebtedness and dividend  
credits, available on a valuation date shall be equal to the value using the accumulation rate  
through that date of the premiums paid minus the accumulation through that date of all of the  
following:  
(i) The benefit charges.  
(ii) The averaged administrative expense charges for the first policy year and any  
insurance increase years.  
(iii) Actual administrative expense charges for other years.  
(iv) Initial and additional acquisition expense charges not exceeding the initial or  
additional expense allowances respectively.  
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(v) Any service charges actually made, excluding charges for cash surrender or  
election of a paid-up nonforfeiture benefit.  
(vi) Any deductions made for partial withdrawals.  
(vii) All accumulations being at the accumulation rate at which changes in policy values  
have been made unconditionally to the policy or have been made conditionally, but for which  
the conditions have since been met, and minus any unamortized, unused initial and additional  
expense allowance.  
(b) Accumulation for the premiums and for all charges referred to in subdivision (a)(i)  
to (vi) of this subrule shall be based on the accumulation rate for the applicable account  
or accounts from and to such dates as are consistent with the manner in which such  
accumulation rate is credited in determining the policy value.  
(c) The benefit charges shall include the charges made for mortality and any charges made  
for riders or supplementary benefits for which premiums are not paid separately. If benefit  
charges are substantially level by duration and develop low or no cash values, then the  
commissioner shall have the right to require higher cash values unless the insurer provides  
adequate justification that the cash values are appropriate in relation to the policy's other  
characteristics.  
(d) The administrative expense charges shall include all of the following:  
(i) Charges per premium payment.  
(ii) Charges per dollar of premium paid.  
(iii) Periodic charges per thousand dollars of insurance.  
(iv) Periodic per policy charges.  
(v) Any other charges permitted by the policy to be imposed without regard to the  
policyowner's request for services.  
(e) The averaged administrative expense charges for any year shall be those which  
would have been imposed in the year if the charge rate or rates for each transaction or  
period within the year had been equal to the arithmetic average of the corresponding charge  
rates which the policy states will be imposed in policy years 2 through 20 in determining  
the policy value.  
(f) The initial acquisition expense charges shall be the excess of the expense charges,  
other than service charges, actually made in the first policy year over the averaged  
administrative expense charges for that year. Additional acquisition expense charges shall be  
the excess of the expense charges, other than service charges, actually made in an insurance  
increase year over the averaged administrative expense charges for that year. An insurance  
increase year shall be the year beginning on the date of increase in the amount of insurance by  
policyowner request or by the terms of the policy.  
(g) Service charges shall include charges permitted by the policy to be imposed as a  
result of a policyowner's request for a service by the insurer, such as the furnishing of  
future benefit illustrations or of special transactions.  
(h) The initial expense allowance shall be the allowance provided by items (ii), (iii),  
and (iv) of paragraph 1 of subsection (5), or by items (ii) and (iii) of paragraph 9 of subsection  
(5), as applicable, of section 4060 of Act No. 218 of the Public Acts of 1956, as  
amended, being S500.4060(5)(1)(ii),(iii), and (iv) or (5)(9)(ii) and (iii) of the Michigan  
Compiled Laws, for a fixed premium, fixed benefit endowment policy with a face amount  
equal to the initial face amount of the variable life insurance policy, with level premiums paid  
annually until the highest attained age at which a premium may be paid under the variable  
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life insurance policy and maturing on the latest maturity date permitted under the policy, if  
any, otherwise at the highest age in the valuation mortality table. The unused initial  
expense allowance shall be the excess, if any, of the initial allowance over the initial  
acquisition expense charge as defined in this subrule.  
(i) If the amount of insurance is subsequently increased upon request of the policyowner  
or by the terms of the policy, an additional expense allowance and an unused additional  
expense allowance shall be determined on a basis consistent with subdivision (h) of this  
subrule and with paragraph 13 of subsection (5) of section 4060 of Act No. 218 of the  
Public Acts of 1956, as amended, being S500.4060(5)(13) of the Michigan Compiled Laws,  
using the face amount and the latest maturity date permitted at that time under the policy.  
(j) The unamortized, unused initial expense allowance during the policy year beginning  
on the policy anniversary at age x+t, where "x" is the issue age, shall be the unused initial  
expense allowance multiplied by x+t/ x where " x+t" and " x " are present value of an  
annuity of 1 per year payable on policy anniversaries beginning at ages x+t and x,  
respectively, and continuing until the highest attained age at which a premium may be paid  
under the policy, both on the mortality guaranteed in the policy and the valuation rate for the  
policy. An unamortized, unused additional expense allowance shall be the unused  
additional expense allowance multiplied by a similar ratio of annuities, with x replaced by an  
annuity beginning on the date as of which the additional expense allowance was  
determined.  
(5) All of the following provisions apply to the use of the prospective method:  
(a) The minimum cash surrender value before adjustment for indebtedness and dividend  
credits which is available on a date as of which interest is credited to the policy shall be equal  
to (A)-(B)-(C)-(D). "A" means the present value of all future benefits. "B" means the  
present value of future adjusted premiums. The adjusted premiums are calculated as  
described in paragraphs 1 to 6 and 9 of subsection (5), as applicable, of section 4060 of Act  
No. 218 of the Public Acts of 1956, as amended, being S500.4060(5)(1) to (6) and (9) of the  
Michigan Compiled Laws. If paragraph 9 of subsection (5) is applicable, the nonforfeiture net  
level premium is equal to the quantity PVFB/ x , where "PVFB" is the present value of all  
benefits at issue assuming future premiums are paid by the policy owner, assuming all  
guarantees contained in the policy or declared by the insurer, and using the valuation rate.  
x is the present value of an annuity of 1 per year payable on policy anniversaries beginning  
at age x and continuing until the highest attained age at which a premium may be paid  
under the policy. "C" means the present value of any quantities analogous to the  
nonforfeiture net level premium which arise because of guarantees declared by the insurer  
after the issue date of the policy. x shall be replaced by an annuity beginning on the date  
the declaration became effective and payable until the end of the period covered by the  
declaration. The types of quantities included are increased current interest rate credits  
guaranteed for a future period, decreased current mortality rate charges guaranteed for a  
future period, or decreased current expense charges guaranteed for a future period. "D"  
means the sum of any quantities analogous to "B" which arise because of structural  
changes in the policy. Structural changes are those changes which are separate from the  
automatic workings of the policy. Such structural changes usually would be initiated by the  
policy owner and include changes in the guaranteed benefits, changes in latest maturity date,  
or changes in allowable premium payment period.  
(b) Future benefits are determined by both of the following:  
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(i) Projecting the policy value, taking into account future premiums, if any, and using the  
guaranteed interest rate, if any; otherwise, the lesser of the air, if any, or the highest state-  
approved nonforfeiture interest rate, and using the mortality, expense deductions, and  
other provisions contained in the policy or declared by the insurer.  
(ii) Taking into account any benefits guaranteed in the policy or by declaration which  
do not depend on the policy value.  
(c) All present values shall be determined using an interest rate or rates specified by  
section 4060 of Act No. 218 of the Public Acts of 1956, as amended, being S500.4060 of the  
Michigan Compiled Laws, for policies issued in the same year, and the mortality rates  
specified by section 4060 of Act No. 218 of the Public Acts of 1956, as amended, for policies  
issued in the same year or contained in such other table as may be approved by the  
commissioner for this purpose.  
(6) All of the following provisions apply to the maximum charge method:  
(a) As used in this subrule:  
(i) "Acquisition and other charges" means charges deducted from gross premiums  
before they are credited to policy value or made to the policy value. They may be expressed  
as a percentage of premium or a dollar amount per $1,000.00 of insurance or a dollar amount  
per premium payment or a per policy charge other than the administrative charge. They do  
not include charges made as a reduction in investment return. These charges may vary by  
premium size, policy size, and policy year.  
(ii) "Administrative charge" means a per policy charge made regularly to the policy value  
or deducted from premiums on scheduled premium policies for the cost of administration.  
This charge shall not be more than $5.00 per month in 1986. In subsequent years, the limit for  
any new or in-force policy shall be the product of $5.00 and the ratio, not to be more than  
2.00 of the consumer price index for all urban households for the September preceding  
the year for which the determination is being made to the consumer price index for September,  
1985. The commissioner may allow a higher charge upon an insurer demonstrating  
justification.  
(iii) "Benefit charges made to the policy value" means the mortality charges made for  
life insurance on the insured person or persons and any charge made for riders and  
supplementary benefits.  
(iv) "Cash surrender value" means the policy value, less any surrender charge, before  
reduction for outstanding loans or other amounts due under the policy.  
(v) "Deferred acquisition and other charges" means acquisition and other charges  
deducted from the policy value after the first policy year.  
(vi) "Excess acquisition and other charges for a face amount increase" means the  
maximum excess of "A" over "B" based on the assumption that the net level whole life annual  
premium for the increase as defined in paragraph (x) of this subdivision applies throughout  
the remaining premium paying period. "A" is the acquisition and other charge for the  
increase and "B" is the arithmetic average of the corresponding charges which the policy  
states would be made in the 19 policy years following the increase.  
(vii) "Excess first-year acquisition and other charges" means the maximum excess of  
"A" over "B" based on the assumption that any premium, other than a single premium,  
payable in the first policy year is also payable during the entire premium paying period. "A"  
is the acquisition and other charge made in the first policy year and "B" is the arithmetic  
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average of the corresponding charges which the policy states would be made in policy years 2  
through 20.  
(viii) "Net investment return" means the actual amount credited to  
policy value net of investment expenses or other charges made as a reduction in  
investment return.  
(ix) "Net level whole life annual premium at issue" is based on the assumption of level  
insurance and level annual premium for life, the mortality table rate used to calculate the  
maximum mortality charges, and an interest rate based on the higher of 4% or that  
specified in the policy.  
(x) "Net level whole life annual premium for an increase in the face amount of  
insurance" shall be determined as of the date of the increase as though such increase were a  
separate policy under paragraph (ix) of this subdivision. Only increases in the face amount  
requested by the policy owner and increases in the face amount pursuant to the terms of  
the policy, such as an option to purchase or a cost-of-living increase, shall give rise to such a  
premium and the associated excess acquisition and other charges for a face amount increase.  
Increases for this purpose shall not include increases in face amount resulting from a change in  
the death benefit option or changes in the death benefit pursuant to policy terms that do not  
affect the face amount. Increases for this purpose shall be reduced by the amounts of any  
earlier decreases that have not been offset against an earlier increase. Such decreases shall  
include  
a
decrease by reason of a partial withdrawal, but not a decrease resulting from a  
change in the death benefit option.  
(xi) "Policy value" means gross premiums paid, excluding separate identified  
premiums for riders or supplementary benefits which are not credited to policy value, plus  
net investment income, which may be positive or negative and may vary based on  
policy loans, less the following as specified in the policy:  
(A) Administrative charges, which may be taken in part from premiums and in part from  
policy value.  
(B) Acquisition and other charges.  
(C) Deferred acquisition and other charges.  
(D) Benefit charges.  
(E) Service charges.  
(F) Partial withdrawals.  
(G) Partial surrender charges.  
(xii) "Service charges made to the policy value" are charges for transactional costs,  
such as partial withdrawals, reallocations of  
policy values, and benefit illustrations.  
Transactional charges shall not be assessed unless specifically permitted by law or  
regulation for transactions made under mandatory policy provisions.  
(xiii) "Surrender charge" is a deferred charge made to the policy value in the event of a full  
or partial surrender of the policy, reduction in the face amount of insurance or premium, or a  
lapse.  
(b) If cash surrender values are determined in accordance with this subrule, then such  
cash surrender values shall be considered to have satisfied the requirements for minimum  
cash surrender values as provided in section 4060 of Act No. 218 of the Public Acts of 1956,  
as amended, being S500.4060 of the Michigan Compiled Laws.  
(i) Acquisition and other charges shall not exceed the sum of all of the following:  
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(A) 90% of premiums received up to the net level whole life annual premium at issue,  
regardless of when received.  
(B) 10% of all other premiums received.  
(C) 90% of the net level whole life annual premium for increases in the face amount of  
insurance as defined in subdivision (a)(x).  
(D) $10.00 per $1,000.00 of initial face amount in the first policy year.  
(E) $1.00 per $1,000.00 of face amount in subsequent policy years.  
(F) $10.00 per $1,000.00 of any increase in the face amount of insurance other than an  
increase resulting from a change in the death benefit option. Increases up to the amount of  
earlier decreases are included here but not in subparagraph (c) of this paragraph.  
(G) $200.00 per policy in the first year.  
(ii) A surrender charge may be established if the initial surrender charge and the actual  
acquisition and other charges made in the first policy year, and the actual acquisition and  
other charges on premiums up to the net level whole life annual premium if received after the  
first year, do not exceed the sum of subparagraph (A), subparagraph (B) in the first year,  
subparagraph (D), and subparagraph (G) of paragraph (i) of this subdivision. Additional  
surrender charges may be established after issue in connection with an increase in the  
face amount if any such additional surrender charge and any acquisition and other charges  
made in connection with such increase do not exceed the sum of subparagraphs (C) and (F)  
of paragraph (i) of this subdivision.  
(iii) A deferred acquisition and other charge may be charged against the policy value in  
any policy after the first such that the total of all such charges imposed to date plus the  
surrender charge for that year does not exceed the maximum initial surrender charge. The  
deferred acquisition and other charge in any 1 year shall not exceed the maximum  
allowable surrender charge for that year. Similar deferred acquisition and other charges may  
be imposed with respect to an increase in the face amount.  
(iv) The maximum allowable surrender charge for any year shall be the maximum initial  
surrender charge multiplied by x+t/ x, where "x" is the issue age and "t" is the number of  
years since issue. Similar maximums shall be determined with respect to any additional  
surrender charges, with x and t based on the date of increase.  
(7) All of the following provisions apply to minimum paid-up nonforfeiture  
benefits:  
(a) If a variable life insurance policy provides for the optional election of a paid-up  
nonforfeiture benefit, it shall be such that its present value shall be at least equal to the cash  
surrender value provided by the policy on the effective date of the election. The present value  
shall be based on mortality and interest standards at least as favorable to the policy owner as  
the mortality and interest basis, if any, specified in the policy for determining the policy  
value or the mortality and interest standards permitted for paid-up nonforfeiture benefits by  
section 4060 of Act No. 218 of the Public Acts of 1956, as amended, being S500.4060 of  
the Michigan Compiled Laws. In place of the paid-up nonforfeiture benefit, the insurer  
may substitute, upon a proper request made not later than 60 days after the due date of the  
premium in default, an actuarially equivalent alternative paid-up nonforfeiture benefit  
which provides a greater amount or longer period of death benefits or, if applicable, a  
greater amount or earlier payment of endowment benefits.  
(b) Any secondary guarantees in a policy shall be taken into consideration when  
computing minimum paid-up nonforfeiture benefits.  
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(c) A charge may be made at the surrender of the policy if the result after the deduction  
of the charge is not less than the minimum cash surrender value required by this subrule.  
(8) An insurer may use different methods to compute minimum cash surrender  
values for different variable life policies, but for any 1 policy form, an insurer shall use the  
same method for all issue ages. An insurer may revise its method for new issues.  
History: 1979 AC; 1988 AACS.  
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:  
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(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  
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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  
500.859(5)(b).  
be  
equivalent  
to those provided by R  
(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.  
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History: 1979 AC; 1988 AACS.  
R 500.851 Variable life insurance policy; nonforfeiture, partial withdrawal,  
policy loan, and partial surrender provisions.  
Rule 11. Every variable life insurance policy delivered or issued for delivery in this state  
shall contain all of the following provisions:  
(a) A provision for nonforfeiture insurance benefits, so that at least 1 such benefit is  
offered on a fixed basis from the due date of the premium in default. Variable extended term  
insurance shall not be offered. A given nonforfeiture option need not be offered on both a  
fixed and a variable basis. The insurer may establish a reasonable minimum cash surrender  
value below which any nonforfeiture insurance options will not be available.  
(b) A provision for policy loans after the policy has been in force for 3 full years. Such  
provision shall be not less favorable to the policyholder than any of the following  
provisions:  
(i) The policyholder may borrow at least 75% of the cash surrender value.  
(ii) The amount borrowed shall bear interest at a rate not to exceed the rate charged on  
comparable fixed benefit policies.  
(iii) Any indebtedness shall be deducted from the proceeds payable on death.  
(iv) Any indebtedness shall be deducted from the cash surrender value upon surrender  
or in determining any nonforfeiture benefit.  
(v) For scheduled premium policies, when the indebtedness exceeds the cash surrender  
value, the insurer shall give notice of intent to cancel the policy if the excess indebtedness is  
not repaid within 31 days after the date of mailing of such notice, by registered mail, return  
receipt requested, to the last known address of the policyholder.  
(vi) For flexible premium policies, when the total charges authorized by the policy that are  
necessary to keep the policy in force until the next following policy processing day exceed the  
amounts available under the policy to pay such charges, a report shall be sent to the  
policyholder containing the information specified by R 500.865(d).  
(vii) The policy may provide that if, at any time, so long as premiums are duly paid, the  
variable death benefit is less than it would have been if no loan or withdrawal had ever been  
made, the policyholder may increase such variable death benefit up to what it would have been  
if there had been no loan or withdrawal by paying an amount not exceeding 110% of  
the corresponding increase in cash value and by furnishing such evidence of insurability as  
the insurer may request.  
(viii) The policy may specify a reasonable minimum amount which may be borrowed at  
any time, but such minimum shall not apply to any automatic premium loan provision.  
(ix) A policy loan provision is not required if the policy is under the extended insurance  
nonforfeiture option.  
(c) In addition to the provisions specified in subdivisions (a) and (b) of this rule, the policy  
may contain a partial surrender provision; however, any such provision shall provide  
that the policyholder may request part of the cash value and both the variable and  
minimum death benefits shall be reduced in proportion to the percentage of the cash value  
received by the policyholder and the premium for the remaining amount of insurance shall  
also be reduced to the appropriate rates for the reduced amount of insurance. The policy may  
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provide that a partial surrender provision shall not require the insurer to reduce the amount  
of the minimum death benefit to less than the lowest amount of minimum death benefit which  
would have been issued to the insured under the insurance plans of the insurer at the time the  
policy was issued. The policy shall clearly provide that the policyholder has the option of  
electing to exercise the cash value privileges of the policy loan provision rather than the  
partial surrender or partial withdrawal provision.  
(d) All policy loan, partial withdrawal, or partial surrender provisions shall be constructed  
so that variable life insurance policyholders who have not exercised such provision are not  
disadvantaged by the exercise thereof.  
(e) Monies paid to the policyholders upon the exercise of any policy loan, partial  
withdrawal, or partial surrender provision shall be withdrawn from the separate account  
and shall be returned to the separate account upon repayment, except that a stock insurer may  
provide the monies for policy loans from the general account.  
History: 1979 AC; 1988 AACS.  
R 500.852 Variable life insurance policy; suicide exclusion; incidental insurance  
benefits on fixed basis; dividends; election of automatic premium loan.  
Rule 12. Any of the following provisions may in substance be included in a variable life  
insurance policy or related form delivered or issued for delivery in this state:  
(a) An exclusion for suicide committed within 2 years of the policy issue date.  
However, to the extent of the increased death benefits only, the policy may provide an  
exclusion for suicide within 2 years of any increase in death benefits which result from an  
application of the owner subsequent to the policy issue date.  
(b) Incidental insurance benefits may be offered on a fixed basis or variable basis.  
(c) Policies issued on a participating basis shall offer to pay dividend amounts in cash. In  
addition, such policies may offer the following dividend options:  
(i) The amount of the dividend may be credited against premium payments.  
(ii) The amount of the dividend may be applied to provide amounts of additional fixed  
benefit life insurance.  
(iii) The amount of the dividend may be applied to provide amounts of additional  
variable life insurance.  
(iv) The amount of the dividend may be deposited in the general account at a specified  
minimum rate of interest.  
(v) The amount of the dividend may be applied to provide paid-up amounts of fixed-benefit,  
1-year term insurance.  
(vi) The amount of the dividend may be deposited as a variable deposit in a separate  
account.  
(d) A provision allowing the policyholder to elect, in writing, in the application for the  
policy or thereafter, an automatic premium loan on a basis not less favorable than that  
required of policy loans under R 500.851, except that a restriction that not more than 2  
consecutive premiums shall be paid under this provision may be imposed.  
(e) A provision allowing the policyholder to make partial withdrawals.  
(f) Any other policy provision approved in writing by the commissioner.  
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History: 1979 AC; 1988 AACS.  
R 500.853 Reserve liabilities.  
Rule 13. All of the following provisions are applicable to reserve liabilities for  
variable life insurance:  
(a) Reserve liabilities for variable life insurance policies shall be established pursuant to  
section 834 of Act No. 218 of the Public Acts of 1956, as amended, being S500.834 of the  
Michigan Compiled Laws, in accordance with actuarial procedures that recognize the  
variable nature of the benefits provided and any mortality guarantees.  
(b) For scheduled premium policies, reserve liabilities for the guaranteed minimum  
death benefit shall be the reserve needed to provide for the contingency of death occurring  
when the guaranteed minimum death benefit exceeds the death benefit that would be paid in  
the absence of the guarantee, shall be maintained in the general account of the insurer, and  
shall be not less than the greater of either of the following minimum reserves:  
(i) The aggregate total of the term costs, if any, covering a period of 1 full year from the  
valuation date, of the guarantee on each variable life insurance contract, assuming an  
immediate 1/3 depreciation in the current value of the assets of the separate account followed  
by a net investment return equal to the assumed investment rate.  
(ii) The aggregate total of the attained age level reserves on each variable life insurance  
contract. The attained age level reserve on each variable life insurance contract shall not be  
less than zero and shall equal the residue, as described in subparagraph (A) of this  
paragraph, of the prior year's attained age level reserve on the contract, with any such residue  
increased or decreased by a payment computed on an attained age basis as described in  
subparagraph (B) of this paragraph. Subparagraphs (A) and (B) read as follows:  
(A) The residue of the prior year's attained age level reserve on each variable life  
insurance contract shall not be less than zero and shall be determined by adding interest at the  
valuation interest rate to such prior year's reserve, deducting the tabular claims based on the  
excess, if any, of the guaranteed minimum death benefit over the death benefit that would be  
payable in the absence of such guarantee, and dividing the net result by the tabular probability  
of survival. The excess referred to in the preceding sentence shall be based on the actual  
level of death benefits that would have been in effect during the preceding year in the  
absence of the guarantee, taking appropriate account of the reserve assumptions regarding  
the distributions of death claim payments over the year.  
(B) The payment referred to in paragraph (ii) of this subdivision shall be computed so that  
the present value of a level payment of that amount each year over the future premium paying  
period of the contract is equal to A minus B minus C, where "A" is the present value  
of the future guaranteed minimum death benefits, "B" is the present value of the future  
death benefits that would be payable in the absence of such guarantee, and "C" is any residue,  
as described in subparagraph (A) of this paragraph, of the prior year's attained age level  
reserve on such variable life insurance contract. The amounts of future death benefits  
referred to in B shall be computed assuming a net investment return of the separate  
account, which may differ from the assumed investment rate or the valuation interest rate,  
or both, but shall not exceed the maximum interest rate permitted for the valuation of life  
insurance contracts; however, if the contract is paid up, the payment shall equal A minus B  
minus C.  
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(c) The valuation interest rate and mortality table used in computing the 2 minimum  
reserves described in subdivision (b)(i) and (ii) shall conform to permissible standards for  
the valuation of life insurance contracts. In determining such minimum reserve, the  
company may employ approximations and estimates acceptable to the commissioner,  
including, but not limited to, groupings and averages.  
(d) For flexible premium policies, reserve liabilities for any guaranteed minimum  
death benefit shall be maintained in the general account of the insurer and shall not be less  
than the aggregate total of the term costs, if any, covering the period in the guarantee not  
otherwise provided for by the reserves held in the separate account assuming an immediate  
1/3 depreciation in the current value of the assets of the separate account followed by a  
net investment return equal to the valuation interest rate. The valuation interest rate and  
mortality table used in computing this additional reserve, if any, shall conform to  
permissible standards for the valuation of life insurance contracts. In determining such  
minimum reserve, the company may employ  
including, but not limited to, groupings and averages.  
suitable approximations and estimates,  
(e) Reserve liabilities for all fixed incidental insurance benefits and any guarantees  
associated with variable incidental insurance benefits shall be maintained in the general  
account and reserve liabilities for all variable aspects of the variable incidental insurance  
benefits shall be maintained in a separate account in amounts determined in accordance  
with the actuarial procedures appropriate to such benefit.  
History: 1979 AC; 1988 AACS.  
R 500.854 Separate accounts generally.  
Rule 14. The following apply to separate accounts for variable life insurance:  
(a) An insurer issuing variable life insurance in this state shall establish 1 or more  
separate accounts pursuant to section 925 of the insurance code of 1956, as amended,  
being S500.925 of the Michigan Compiled Laws.  
(b) An insurer shall not, without the prior written approval of the commissioner,  
employ, in any material connection with the handling of separate account assets, any  
person, who:  
(i) Within the last 10 years, has been convicted of any felony or a misdemeanor arising  
out of such person's conduct  
involving  
embezzlement, fraudulent conversion, or  
misappropriation of funds or securities or involving violation of 18 U.S.C. SS1341, 1342, or  
1343; or  
(ii) Within the last 10 years, has been found by any state regulatory authority to have  
violated, or has acknowledged violation of, any provision of any state insurance law  
involving fraud, deceit, or knowing misrepresentation; or  
(iii) Within the last 10 years, has been found by federal or state regulatory authorities  
to have violated, or has acknowledged violation of, any provision of federal or state securities  
laws involving fraud, deceit, or knowing misrepresentation.  
(c) If the commissioner determines not to grant prior written approval to any person  
described in subdivisions (b)(i), (ii), and (iii), that decision may be considered a decision  
not to license an individual, and a person so affected may exercise his right for an  
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appropriate hearing pursuant to Act No. 306 of the Public Acts of 1969, as amended, being  
S24.201 et seq. of the Michigan Compiled Laws.  
(d) All persons with access to the cash, securities, or other assets of the separate account  
shall be under bond in an amount of not less than $250,000.00 or 1/2 of 1% of assets,  
whichever is greater, but in any event not more than 100% of assets.  
(e) If an insurer establishes more than 1 separate account for variable life insurance,  
justification for the establishment of each additional separate account shall also be filed with  
the commissioner and shall be subject to his approval. The creation of additional separate  
accounts to avoid lower maximum charges against the separate account is prohibited.  
(f) The assets of separate accounts established for variable life insurance policies shall  
be valued as often as variable benefits are determined, but in any event at least monthly.  
(g) A separate account exempt pursuant to section 3(c)(11) of the investment  
company act of 1940 because of the tax qualified status of the policies funded thereby shall  
not be used to fund other variable life insurance policies.  
(h) Except for separate accounts exempt pursuant to section 3(c)(11) of the investment  
company act of 1940, variable life insurance separate accounts shall not be used for  
variable annuities or for the investment of funds corresponding to dividend accumulations  
or other policyholder liabilities not involving life contingencies.  
History: 1979 AC.  
R 500.855 Separate accounts; assets.  
Rule 15. The insurer shall maintain, in each variable life insurance separate account,  
assets with a fair market value at least equal to the greater of the valuation reserves for the  
variable portion of the variable life insurance policies or the benefit base for such policies.  
History: 1979 AC; 1988 AACS.  
R 500.856 Separate accounts; investments.  
Rule 16. All of the following provisions apply to investments of separate accounts of  
variable life insurance:  
(a) A sale, exchange, or other transfer of assets shall not be made by an insurer or any of  
its affiliates between any of its separate accounts or between any other investment account  
and 1 or more of its separate accounts unless both of the following requirements are  
satisfied:  
(i) In case of a transfer into a separate account, such transfer is made solely to establish  
the account or to support the operation of the policies with respect to the separate account  
to which the transfer is made.  
(ii) Such transfer, whether into or from a separate account, is made by a transfer of cash;  
but other assets may be transferred if approved by the commissioner in advance.  
(b) Assets allocated to a variable life insurance separate account shall be held in cash or  
investments having a  
reasonably  
ascertainable  
market price. For purposes of this  
subdivision, only the following shall be considered investments having a reasonably  
ascertainable market price:  
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(i) Liens in favor of the insurer against separate account policy reserves resulting  
from use by policyholders of cash values.  
(ii) Securities listed and traded on the New York stock exchange, the American stock  
exchange, or regional stock exchanges or successors to such exchanges having the same or  
similar qualifications.  
(iii) Securities listed on the national association of securities dealers automated  
quotations system.  
(iv) Shares of an investment company registered pursuant to the provisions of 15  
U.S.C. S80a-1 et seq. Where such an investment company issues book shares instead of share  
certificates, such book shares shall be deemed to be adequate evidence of ownership.  
(v) Obligations of, or guaranteed by, the United States government, the Canadian  
government, any state, or any municipality or governmental subdivision of a state.  
(vi) Commercial paper issued by business corporations when the total of such paper  
issued by the corporation does not exceed in value a guaranteed short line of credit by a bank.  
(vii) Certificates of deposit issued by financial institutions, the deposits of which are  
insured by the federal deposit insurance corporation or the federal savings and loan insurance  
corporation.  
(viii) New bond or debt issues which may reasonably be expected to be listed on an  
exchange regulated by the securities exchange act of 1934, 15 U.S.C. S78a et seq.  
(ix) Financial futures contracts issued under terms and conditions regulated by a  
federal regulatory agency and in compliance with the requirements of section 943 of Act  
No. 218 of the Public Acts of 1956, as amended, being S500.943 of the Michigan Compiled  
Laws.  
(c) Assets allocated to a variable life insurance separate account shall not be invested in  
any of the following:  
(i) Letter or restricted stock, except through shares of an investment company registered  
under the provisions of 15 U.S.C. S80a-1 et seq.  
(ii) Units or other evidences of ownership or a separate account of  
another insurer, except those registered under the provisions of 15 U.S.C.S80a-1 et seq.  
(iii) Real estate other than shares of a real estate investment trust listed as described in  
subdivision (b)(ii) of this rule.  
(d) The separate account shall have sufficient net investment income and readily  
marketable assets to meet anticipated withdrawals under policies funded by the account.  
History: 1979 AC; 1988 AACS.  
R 500.857 Separate accounts; limitations on ownership of securities.  
Rule 17. The following apply to limitations on ownership by  
variable life insurance:  
a
separate account for  
(a) A variable life insurance separate account shall not purchase or otherwise acquire  
the securities of any issuer, other than securities issued or guaranteed as to principal and  
interest by the United States, if immediately after such purchase or acquisition the value  
of  
such investment, together with prior investments of such separate account in such  
security valued as required by these rules, would exceed 10% of the value of the assets of the  
separate account. The commissioner may waive this limitation in writing if he believes such  
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waiver will not render the operation of the separate account hazardous to the public or  
the policyholders in this state.  
(b) No separate account shall purchase or otherwise acquire the voting securities of any  
issuer if as a result of such acquisition the insurer and its separate accounts, in the aggregate,  
will own more than 10% of the total issued and outstanding voting securities of such  
issuer. The commissioner may waive this limitation in writing if he believes such waiver  
will not render the operation of the separate account hazardous to the public or the  
policyholders in this state or jeopardize the independent operation of the issuer of such  
securities.  
(c) The percentage limitation specified in subdivision (a) of this rule shall not be  
construed to preclude the investment of the assets of separate accounts in shares of  
investment companies registered pursuant to the investment company act of 1940 if the  
investments and investment policies of such investment companies comply substantially  
with the provisions of R 500.856 and other applicable rules.  
History: 1979 AC.  
R 500.858 Separate accounts; valuation of assets.  
Rule 18. The following apply to valuation of assets of a separate account for variable  
life insurance:  
(a) Investments of the separate account shall be valued at their market value on the date  
of valuation. Market value for investments traded on the recognized exchanges means the last  
reported sale price on the date of valuation. If there has been no sale on that date, the market  
value means the last reported bid quotation on the date of valuation. Market value for  
investments listed on the NASDAQ system means the last representative bid quotation on the  
valuation date. If an investment ceases to be listed but continues to be traded over the counter,  
it shall be valued at the lowest bid quotation as it appears on the national quotation bureau  
sheets.  
(b) If the valuation date referred to in subdivision (a) above is a day when the exchange  
or the NASDAQ system is not open for business, the valuation date shall be the last date  
when the exchange or the NASDAQ system was open for business.  
(c) If an investment ceases to be traded, it shall be valued at fair value as determined in  
good faith by, or at the direction of, the committee of the separate account, or if there is no  
such committee, the board of directors of the insurer, but not in excess of the last reported  
bid quotation. Within 30 days notification of cessation of trading of any investment shall be  
reported by the insurer to the commissioner of the state of domicile of the insurer, who shall  
within a reasonable period of time determine the method of valuation or disposition of such  
investment.  
History: 1979 AC.  
R 500.859 Separate accounts; material change in investment policy.  
Rule 19. (1) The investment policies of a separate account for variable life insurance  
operated by insurers authorized under R 500.843 shall not be changed without first filing  
such change with the insurance commissioner.  
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(2) A material change in the investment policy of  
domestic insurer or an alien insurer entering the United States through this state and filed  
under R 500.843(c)(iii) shall not be made without first filing such change with the  
commissioner not less than 60 days before the effective date of the change.  
(3) A material change in the investment policy of separate account operated by a  
a
separate account operated by a  
a
foreign insurer or an alien insurer not entering the United States through this state, pursuant to  
the section of the insurance law of the insurer's state of domicile which corresponds to R  
500.843(c)(iii), shall not be made without first filing such change with the commissioner not  
less than 60 days before the effective date of the change.  
(4) Any change filed pursuant to this rule shall be effective 60 days after the date it was  
filed with the commissioner, unless the commissioner notifies the insurer before the end of  
such 60-day period of his or her disapproval of the proposed change. At any time the  
commissioner may, after notice and public hearing, disapprove any change that has become  
effective pursuant to this rule if he or she determines that the change would be detrimental to  
the interests of the policyholders participating in such separate accounts.  
(5) If any policyholder objects to a proposed material change in the investment policy  
of a separate account and the change becomes effective, the objecting policyholder shall be  
given the option of converting, within 60 days after the effective date of the change or the receipt  
of a notice of the options available, whichever is later, without evidence of  
insurability, under 1 of the following options, to a fixed benefit life insurance policy issued  
by the insurer or an affiliate:  
(a) If the policy is a scheduled premium policy, as defined by R 500.841 and is in force on  
a premium paying basis, an insurer shall offer either or both of the following options:  
(i) A conversion as of the original issue age to a substantially comparable form of  
general account life insurance, based on the insurer's premium rates for a general account life  
insurance policy at the original issue age, for an amount of insurance not exceeding the death  
benefit of the variable life insurance policy on the date of conversion. If the cash value of the  
variable life insurance policy exceeds the cash value of the general account life insurance  
policy, the difference shall be paid to the policyholder. If the cash value of the general  
account life insurance policy exceeds the cash value of the variable life insurance policy,  
the difference shall be paid by the policyholder.  
(ii) Conversion as of the attained age to  
a
substantially comparable form of general  
account life insurance for an amount of insurance not exceeding the excess of the death  
benefit of the variable life insurance policy on the date of conversion over either of the  
following:  
(A) Its net cash surrender value on the date of conversion if the withdrawing  
policyholder elects to surrender the variable life policy for its net cash surrender value.  
(B) The death benefit payable under any paid-up insurance option if the withdrawing  
policyholder elects such nonforfeiture option under the variable life policy.  
(b) If the policy is in force as paid-up variable life insurance, then conversion shall be to  
a substantially comparable paid-up general account life insurance policy for an amount of  
insurance not exceeding the death benefit of the variable life insurance policy on the date of  
conversion.  
(c) If the policy is a flexible premium policy, as defined by R 500.841 and is in force, an  
insurer shall offer a conversion to  
a
substantially comparable flexible premium general  
account life insurance policy for an amount of insurance not exceeding the death benefit of  
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the variable life insurance policy on the date of conversion. If the cash value of the  
variable life insurance policy exceeds the cash value of the general account life insurance  
policy, the difference shall be paid to the policyholder. If the cash value of the general  
account life insurance policy exceeds the cash value of the variable life insurance policy,  
the difference shall be paid by the policyholder.  
History: 1979 AC; 1988 AACS.  
R 500.860 Separate accounts; allowable charges.  
Rule 20. The insurer shall disclose, in writing, before or at the time of delivery of the  
policy, all charges that may be made against the variable life insurance separate account,  
including, but not limited to, all of the following:  
(a) Taxes or reserves for taxes attributable to investment gains and income of the  
separate account.  
(b) Actual cost of reasonable brokerage fees and similar direct acquisition and sales  
costs incurred in the purchase or sale of separate account assets.  
(c) Actuarially determined costs of insurance (tabular costs) and the release of reserves  
and benefit base consistent with the release of separate account liabilities.  
(d) Charges for administrative expenses and investment management expenses,  
including internal costs attributable to  
separate account.  
the  
investment management of assets of the  
(e) A charge for mortality and expense guarantees at a rate specified in the policy.  
(f) Any amount in excess of those required to be held in the separate account.  
(g) Any charges for incidental insurance benefits.  
History: 1979 AC; 1988 AACS.  
R 500.861 Standards of conduct and conflicts of interest.  
Rule 21. The following apply to standards of conduct and conflict of interest:  
(a) Every insurer seeking approval to enter into the variable life insurance business in  
this state, shall adopt by formal action of its board of directors, and file with the  
commissioner, a written statement specifying the standards of conduct of the insurer,  
its officers, directors, employees, and affiliates with respect to investments of variable  
life insurance separate accounts and variable life insurance operations. Such standards of  
conduct shall be binding on the insurer and those to whom it refers and shall contain at a  
minimum the items contained in subdivision (c) of this rule.  
(b) Rules under any provisions of the insurance laws of this state or any regulation  
applicable to the officers and directors of insurance companies with respect to conflicts of  
interest shall also apply to members of any separate account's committee or other similar  
body. No officer or director of such company nor any member of any managing  
committee or body of separate account shall receive, directly  
or indirectly, any  
commission or any other compensation with respect to the purchase or sale of assets of  
such separate account. The board of directors of the insurer is responsible for all acts  
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concerning the separate account, except to the extent that authority must be exercised by a  
separate account committee established pursuant to section 925(3) of the insurance code of  
1956, as amended, being S500.925(3) of the Michigan Compiled Laws.  
(c) Unless otherwise approved in writing by the commissioner in advance of the  
transaction, with respect to variable life insurance separate accounts, an insurer or  
affiliate thereof shall not:  
(i) Sell to, or purchase from, any such separate account established by the insurer any  
securities or other property, other than variable life insurance policies.  
(ii) Purchase, or allow to be purchased, for any such separate account, any securities of  
which the insurer or an affiliate is the issuer.  
(iii) Accept any compensation, other than a regular salary or wages from such insurer or  
affiliate, for the sale or purchase of securities to or from any such separate account other  
than as provided in subdivision (d)(iii) of R 500.861.  
(iv) Engage in any joint transaction, participation, or common undertaking whereby  
such insurer or an affiliate participates with such a separate account in any transaction in  
which an insurer or any of its affiliates obtains an advantage in the price or quality of  
the item purchased, in the service received, or in the cost of such service and the insurer or  
any of its other affiliates is disadvantaged in any of these respects by the same transaction.  
(v) Borrow money or securities from any such separate account other than under a policy  
loan provision.  
(d) No provision of this rule shall be construed to prohibit any of the following:  
(i) The investment of separate account assets in securities issued by 1 or more investment  
companies registered pursuant to the investment company act of 1940 which is sponsored or  
managed by the insurer or an affiliate, and the payment of investment management or advisory  
fees on such assets.  
(ii) The combination of orders for the purchase or sale of securities for the insurer, an  
affiliate thereof, any separate accounts, or any 1 or more of them, which is for their mutual  
benefit or convenience so long as any securities so purchased or the proceeds of any sale  
thereof are allocated among the participants on some predetermined basis expressed in  
writing which is designed to assure the equitable treatment of all participants.  
(iii) An insurer or an affiliate to act as a broker or dealer in connection with the sale  
of securities to or by such separate account; however, any commission fee or remuneration  
charged therefor shall not exceed minimum broker's commission established for any such  
transaction by any national securities exchange through which such transaction could be  
effected or such charges prevailing for arm's length transactions in the ordinary course of  
business in the community where such transaction is effected.  
(iv) The rendering of investment management or investment advisory services by an  
insurer or affiliate, for a fee, subject to the provisions of this rule and R 500.862.  
(e) The commissioner may, upon the written request of an insurer or an affiliate,  
approve a particular transaction or series of proposed transactions which would otherwise  
be prohibited under subdivision (c) if he determines such transaction is not unfair or  
inequitable to persons affected under the circumstances of such transactions.  
History: 1979 AC.  
R 500.862 Investment advisory contracts.  
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Rule 22. (1) An insurer shall not enter into a contract under which any person undertakes,  
for a fee, to regularly furnish investment advice to such insurer with respect to its separate  
accounts maintained for variable life insurance policies unless:  
(a) The person providing such advice is registered as an investment adviser under the  
investment advisors act of 1940;  
(b) The person providing such advice is an investment manager under the employee  
retirement income security act of 1974, 88 Stat. 829, with respect to the assets of each  
employee benefit plan allocated to the separate account; or  
(c) The insurer has filed with the commissioner and continues to file annually the  
following information and statements concerning the proposed adviser:  
(i) The name and form of organization, state of organization, and its principal place of  
business.  
(ii) The names and addresses of its partners, officers, directors, and persons performing  
similar functions or, if such an investment adviser be an individual, or such individual.  
(iii) A written standard of conduct complying in substance with the requirements of  
subdivision (a) of R 500.861 which has been adopted by the investment adviser and is  
applicable to the investment adviser, its officers, directors, and affiliates; and any other  
persons or entities performing similar functions.  
(iv) A statement provided by the proposed adviser as to whether the adviser or any  
person associated therewith:  
(A) Has been convicted within 10 years of any felony or misdemeanor arising out of  
such person's conduct as an employee, salesman, officer or director of an insurance company,  
a bank, an insurance agent, a securities broker, or an investment adviser; involving  
embezzlement, fraudulent conversion, or misappropriation of funds or securities, or involving  
the violation of 18 U.S.C. SS1341, 1342, and 1343.  
(B) Has been permanently or temporarily enjoined by order, judgment, or decree of any  
court of competent jurisdiction from acting as an investment adviser, underwriter, broker, or  
dealer, or as an affiliated person or as an employee of any investment company, bank, or  
insurance company, or from engaging in, or continuing any conduct or practice in connection  
with, any such activity.  
(C) Has been found by federal or state regulatory authorities to have willfully violated,  
or has acknowledged willful violation of, any provision of federal or state securities laws  
or state insurance laws or of any rule or regulation under any such laws.  
(D) Has been censured, denied an investment adviser registration, had a registration as an  
investment adviser revoked or suspended from being associated with an investment  
adviser by order of federal or state regulatory authorities.  
(2) Such investment advisory contract shall be in writing and provide that it may be  
terminated by the insurer without penalty to the insurer or the separate account upon not more  
than 60 days' written notice to the investment adviser.  
(3) The commissioner, after notice and opportunity for hearing, may by order prohibit  
execution of such contract, or require such investment advisory contract to be terminated,  
if he deems continued operation thereunder to be hazardous to the public or the insurer's  
policyholders.  
(4) If the commissioner finds that the public safety or welfare requires emergency action,  
and incorporates the finding in his orders, he may summarily suspend an investment  
advisory contract.  
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History: 1979 AC.  
R 500.863 Information required to be delivered to policy applicant.  
Rule 23. The requirements of this rule shall be deemed to have been satisfied by the  
delivery to the applicant of a prospectus included in a registration statement which satisfies  
the requirements of the securities act of 1933, 15 U.S.C. S77A et seq., and which was  
declared effective by the securities and exchange commission to the extent that the  
prospectus contains the information required by this rule. An insurer delivering or issuing for  
delivery in this state any variable life insurance policies shall deliver to the applicant for the  
policy, and obtain a written acknowledgment of receipt from such applicant coincident with,  
or before, the execution of the application, the following information:  
(a) A summary explanation, in nontechnical terms, of the principal features of the  
policy, including a description of the manner in which the variable benefits will reflect the  
investment experience of the separate account and the factors which affect such variation.  
Such explanation shall include notices of the provisions required by R 500.850(a)(iv) and  
(f). (b) A statement of the investment policy of the separate account, including both of the  
following:  
(i) A description of the investment objective and orientation intended for the separate  
account and the principal types of investments intended to be made as required by R  
500.843(c)(iii).  
(ii) Any restriction or limitations on the manner in which the operations of the  
separate account are intended to be conducted.  
(c) A statement of the net investment return of the separate account for each of the last 10  
years for which the separate account was in existence.  
(d) A statement of the annual taxes, brokerage fees, and all other costs, including all  
allowable charges whether expressed as an annual percentage or otherwise, levied against  
the separate account during the previous year.  
(e) A summary of the method to be used in valuing assets held by the separate account.  
(f) A summary of the federal income tax liabilities of the policy applicable to the  
insured, the policy owner, and the beneficiary.  
(g) Illustrations of benefits payable under any variable life insurance contract shall be  
prepared by the insurer and shall not include projections of past investment experience  
into the future or attempted predictions of future investment experience; however, nothing  
contained in this subdivision shall be construed to prohibit the use of hypothetical assumed  
rates of return to illustrate possible levels of benefits if it is made clear that such assumed rates  
are hypothetical only.  
History: 1979 AC; 1988 AACS.  
R 500.864 Policy application.  
Rule 24. The application for a variable life insurance policy shall contain all of the  
following statements and questions:  
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(a) A prominent statement that the death benefit may be variable or fixed under  
specified conditions.  
(b) A prominent statement that cash values may increase or decrease in accordance with  
the experience of the separate account, subject to any specified minimum guarantees.  
(c) Questions designed to elicit information which enables the insurer to determine the  
suitability of variable life insurance for the applicant.  
(d) A prominent statement that, in the case of a variable endowment policy, the amount  
of the endowment payable at maturity is not guaranteed, but is dependent upon the then cash  
surrender value, subject to any specified minimum guarantees.  
History: 1979 AC; 1988 AACS.  
R 500.865 Reports to policyholders.  
Rule 25. Any insurer delivering or issuing for delivery in this state any variable life  
insurance policies shall mail to each variable life insurance policyholder, at his or her last  
known address, all of the following statements, notice, report, and information:  
(a) Within 30 days after each anniversary of the policy, a statement or statements of all of  
the following:  
(i) The cash surrender value.  
(ii) Death benefit.  
(iii) Any partial withdrawal.  
(iv) Any policy loan.  
(v) Any interest charge.  
(vi) Any optional payments allowed under the policy pursuant to R 500.851  
computed as of the policy anniversary date. Such statement may be furnished within 30 days  
after a specified date in each policy year if the information contained therein is computed as of  
a date not more than 65 days before the mailing of such notice. This statement shall state  
that, in accordance with the investment experience of the separate account, the cash values  
and the variable death benefit may increase or decrease and the statement shall prominently  
identify any value described therein which may be recomputed before the next statement  
required by this rule. If the policy guarantees that the variable death benefit on the next  
policy anniversary date will not be less than the variable death benefit specified in such  
statement, the statement shall be modified to so indicate. For flexible premium policies,  
the statement shall contain a reconciliation of the change since the previous statement in  
cash value and cash surrender value, if different, because of payments made, less  
deductions for expense charges; withdrawals; investment experience; insurance charges;  
and any other charges made against the cash value. In addition, the statement shall show the  
projected cash value and cash surrender value, if different, as of 1 year from the end of  
the period covered by the statement assuming that planned periodic premiums, if any, are  
paid as scheduled, guaranteed costs of insurance are deducted, and the net return is equal to the  
guaranteed rate or, in the absence of a guaranteed rate, is not more than zero. If the  
projected value is less than zero, a warning message shall be included that states that the  
policy may be in danger of terminating without value in the next 12 months unless additional  
premium is paid.  
(b) Annually, a statement or statements including all of the following information:  
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(i) A summary of the financial statement of the separate account, including a  
calculation of the net investment return, based on the annual statement last filed with the  
commissioner.  
(ii) The net investment return of the separate account for the most recent year and, for  
each year after the first, a comparison of the investment rate of the separate account during  
the most recent year with the investment rate during prior years, up to a total of 5 years,  
when available.  
(iii) A list of investments held by the separate account as of a date not earlier than the  
end of the last year for which an annual statement was filed with the commissioner.  
(iv) Any charges, taxes, and brokerage fees determined on an accrual basis payable by  
the separate account during the previous year, each expressed as a dollar amount and a  
percentage and the total expressed as a dollar amount and as a percentage of the assets of the  
separate account.  
(v) A statement of any change in any of the following since the last statement:  
(A) The investment objective and orientation of the separate account.  
(B) Any investment restriction or material quantitative  
requirement applicable to the separate account.  
or  
qualitative investment  
(C) The investment adviser of the separate account.  
(vi) The name of each broker or dealer handling portfolio transactions on behalf of the  
separate account in which the insurer or an affiliate has any material interest, directly or  
indirectly, and the nature of such transactions and the amount of compensation received by  
each such broker or dealer from business originating with the separate account during the  
preceding fiscal year.  
(vii) The names and principal occupations of each principal executive officer and each  
director of the insurer.  
(viii) The names of all parents of the insurer and the basis of control of the insurer, and the  
name of any person who is known to own, of record or beneficially, 10% or more of the  
outstanding voting securities of the company.  
(c) Notwithstanding the requirements in subdivision (b) of this rule, a notice of any  
change in investment policy of the separate account, pursuant to R 500.859, shall be  
provided not later than 6 months from the effective date of that change. This requirement  
shall be considered satisfied if an annual report containing such notice is provided not later  
than 6 months from the effective date of the change or if a substantially similar notice is made  
pursuant to any federal securities laws not later than 6 months from the effective date.  
(d) For flexible premium policies, a statement shall be sent to the policyholder if the  
amounts available under the policy, on any policy processing day, to pay the charges  
authorized by the policy are less than the amount necessary to keep the policy in force until  
the next following policy processing day. The statement shall indicate the minimum  
payment required under the terms of the policy to keep it in force and the length of the grace  
period for payment of such amount.  
(e) Such additional information concerning the variable life insurance operations or the  
variable life insurance separate accounts as the commissioner shall deem appropriate.  
History: 1979 AC; 1988 AACS.  
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R 500.866 Qualification of agents for the sale of variable life insurance.  
Rule 26. The following apply to qualifications of agents for the sale of variable life  
insurance:  
(a) No person shall sell or offer for sale in this state any variable life insurance policy  
unless such person is an agent and has filed with the commissioner, in a form satisfactory to  
the commissioner, evidence that such person holds any license or authorization which may be  
required for the solicitation or sale of variable life insurance by any federal or state securities  
law.  
(b) Any examination conducted by the commissioner for the purpose of determining the  
eligibility of any person for licensing as an agent shall, after the effective date of these rules,  
include such questions concerning the history, purpose, regulation, and sale of variable life  
insurance as the commissioner deems appropriate.  
(c) Any person qualified in this state under this rule to sell or offer to sell variable life  
insurance shall immediately report to the commissioner all of the following:  
(i) Any suspension or revocation of his agent's license in any other state or territory of  
the United States.  
(ii) The imposition of any disciplinary sanction, including suspension, or revocation of or  
denial of registration, imposed upon him by any national securities exchange, or national  
securities association, or any federal, state, or territorial agency with jurisdiction over  
securities or variable life insurance.  
(iii) Any judgment or injunction entered against him on the basis of conduct deemed to  
have involved fraud, deceit, misrepresentation, or violation of any insurance or securities  
law or regulation.  
(d) The commissioner may reject any application or suspend or revoke or refuse to renew  
any agent's qualification under this rule to sell or offer to sell variable life insurance upon any  
ground that would bar such applicant or such agent from being licensed to sell other life  
insurance contracts in this state. The rules governing any proceeding relating to the  
suspension or revocation of an agent's license shall also govern any proceeding for suspension  
or revocation of an agent's qualification to sell or offer to sell variable life insurance.  
History: 1979 AC.  
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;