Opinion
Thomas G. Meeker, General Counsel for SEC, Washington, D.C., Daniel J. McCauley, Assoc. Gen. Counsel, Philadelphia, Pa., Myer Feldman, New York City, Special Counsel for SEC, Pace Reich, Philadelphia, Pa., for plaintiff Securities and Exchange Commission.
John H. Dorsey, Bolling R. Powell, John W. Lindsey, Blum, Lindsey & Powell, Washington, D.C., for intervenor-plaintiff.
James M. Earnest and George R. Jacobi, Washington, D.C., Roy W. McDonald, Donovan Leisure, Newton & Irvine, New York City, for defendant The Variable Annuity Life Ins. Co. of America.
Brookhart, Becker & Dorsey, Benjamin H. Dorsey, Washington D.C., for defendant-Intervenor The Equity Annuity Life Ins. Co.
WILKIN, District Judge.
This case came on for trial and was submitted on the pleadings, stipulations, evidence and briefs. Jurisdiction is based on 15 U.S.C.A. § 77a et seq., and § 80a-1 et seq. The defendants are chartered life insurance companies in the District of Columbia. The Equity Annuity Life Insurance Company, on its own motion, was made an intervenor-defendant. The National Association of Securities Dealers, Inc., (organized under 15 U.S.C.A. § 78O-3 et seq.) on its motion, was made an intervenor-plaintiff.
Throughout the trial, the plaintiff was referred to as 'SEC', and the intervenor-plaintiff was referred to as 'NASD'. The defendant was referred to as 'VALIC', and the intervenor-defendant was referred to as 'EALIC'.
The Complaint prays for a preliminary and final injunction restraining VALIC from selling or offering for sale certain contracts denominated 'variable annuity' contracts or policies, unless and until they are registered with SEC in accordance with the provisions of the Securities Act of 1933, and the Company complies with the provisions of the Investment Company Act of 1940.
It is the contention of the plaintiff that the very nature, and the express provisions, of the variable annuity contracts make the companies and the contracts amenable to the enactments of Congress and the regulations of SEC with reference to the sale of securities or interests in securities.
The defendants oppose that contention and insist that they are insurance companies, that the variable annuity contracts which they issue are insurance policies, that the defendant companies are licensed and regulated by the District Insurance Superintendent and the State Insurance Commissioners where they operate, and that they are expressly exempt from the jurisdiction of the Federal agency established for the regulation of the sale of securities.
The defendants further assert that the McCarran-Ferguson Insurance Regulation Act (Act, March 9, 1945, 59 Stat. 33, as amended, Act, July 25, 1947, c. 326, 61 Stat. 448, 15 U.S.C.A. §§ 1011-1015) gives the State and District authorities exclusive jurisdiction over them and their business.
The issue in the case is,-- Are the defendants and their equity or variable annuity contracts subject to the State and District laws exclusively, or are they subject to the Federal regulations as administered by the SEC, or are they subject to both State and Federal regulations? That issue must be determined first by a consideration of the contracts. Are such contracts insurance policies, or are they securities evidencing investments or interests in investments?
The evidence in this case makes it clear to this Court that they cannot be classified as either, exclusively. The variable annuity contracts contain provisions which must be classified as insurance, and also provisions which bring them within the statutory definition of securities.
The contracts issued by the defendants differ in certain details. The amount and terms of payment are different; some contracts include decreasing term life insurance, others do not; some, but not all, include a waiver of further payments to the company in case of the permanent and total disability of the holder of the contract.
The essential characteristic of all the contracts, and the characteristic which gives rise to this litigation, is found in the provisions which create a reserve fund of the amounts paid by contract holders for the purpose of investing it mainly in common stocks under the management of the company, and from which annuity and other payments due to contract holders shall be made in amounts determined by the investment experience, i.e., profits and losses of the fund.
Plaintiff's Exhibit No. 1, entitled 'Deferred Variable Annuity Policy', was received in evidence as a specimen of all the contracts that employ such investment practice (Appendix 1). It was issued and sold by VALIC. For purposes of clarity and convenience, it and VALIC will be referred to with the understanding that what is said applies to all similar contracts and the companies issuing them.
EALIC stipulated that its contracts were in all material respects the same as those issued by VALIC.
The contract provides for two periods: (1) the accumulation or pay-in period, and (2) the annuity or withdrawal period. During the first period, the contract holder makes 'premium' payments for which he receives an equitable interest in VALIC's investment fund, and for which VALIC credits him with a number of 'accumulation units'. The number of units is determined by dividing the amount of the payment by the value of one accumulation unit as of the last day of the month in which the payment is received. The value of one unit is, of course, determined by dividing the amount of the fund (marked value of stock) by the number of accumulation units issued against it. The amount paid by the contract holder is subject to a deduction for management expense and the cost (premiums) of decreasing term life insurance and total permanent disability insurance, and the remainder is then applied to the purchase of accumulation units.
The variable annuity period (2) is the term during which VALIC makes variable annuity payments, according to the terms of the contract, to the contract holder who has elected to participate in the plan. The contract holder is credited with a sum of money determined by multiplying the number of accumulation units credited to his account by the value of one unit as of that time. The first annuity payment is computed on the sum so credited by using the Progressive Annuity Table with a rate of interest of 3 1/2 per cent per annum, in the same way that any life insurance company would compute it. VALIC then credits the contract holder with a number of annuity units, the number being determined by dividing the amount of the first payment by the value of a unit. The number of units then remains constant for the term of the contract, but the value of an annuity unit varies thereafter according to VALIC's investment experience. And subsequent variable annuity payments are computed by multiplying number of units by the value of a unit at time of payment.
This analysis of the variable annuity shows that, while the contract has certain definite features of insurance, it has a marked difference from the conventional insurance contract. Whereas the money paid for conventional insurance becomes the absolute property of the insurance company, the money paid for a variable annuity goes into an investment fund which becomes, by operation of law if not by express terms of the contract, a trust fund for the equitable interests of the contract holders. And, whereas the conventional insurance policy obligates the insurance company to pay the policy holder a definite fixed amount at specified times, the variable annuity contract obligates the company issuing it to pay at stipulated times, not fixed dollar amounts, but only such amounts as are warranted by the investment experience of the company managing the fund.
The evidence was clear and undisputed that the variable annuity contract was devised for the very purpose of providing contract holders with payments adjusted to the fluctuating purchasing power of the dollar. The evidence revealed that the value of the dollar (measured by purchasing power) had declined about 70% in the last 70 years, and that holders of policies and securities yielding a fixed-dollar return were deprived of the security which they had expected. The variable annuity contract was based on the economic theory (questioned by some economists) that common stocks tend to fluctuate in value with business conditions, and to rise generally with price levels and the cost of living. It was, therefore, deemed advisable by some insurance companies to abandon the traditional practice of investing in debt securities which provide certain, but fixed, interest rates, and create instead a reserve fund segregated from other company assets, invested in diversified stocks, and offer to their annuitants an undivided interest in such fund, evidenced by annuity units, the value of which fluctuates with the rise and fall of common stock prices.
It seems clear to this Court that such an arrangement would, if the fund is well managed, tend to increase payments due to annuitants in general, in accordance with the rise in the cost of living at times of inflation. But contract holders whose annuity payments came due at a time of severe economic depression would realize that they had no insurance against the fate of stock, 'securities' or 'investments', that fail with the decline or collapse of the stock market. While the contract would provide a kind of hedge against the effect of inflation, it would give no insurance against the effect of depression.
Extensive testimony was offered at trial as to the nature and practices of insurance business and of investment business for the purpose of incorporating in the record a basis for arguments regarding analogies and differences. Actuaries, economists, insurance specialists and publicists, and executive officers of insurance companies, investment companies and the New York Stock Exchange, were called as witnesses. The evidence was generally instructive and interesting, and revealed the great public interest in the issue of the case, but it need not be reviewed in this opinion because life insurance, life annuity and investment trust concepts, functions and contracts are generally understood, and, as stated at trial, the controlling facts are largely undisputed.
For that reason, the real issue must be determined by the law, and the controlling law is found in the applicable statutes. The plaintiffs contend that the variable annuity contract is a 'security' as defined by the Securities Act of 1933, and cite Sec. 2(1), 15 U.S.C.A. § 77b(1):
'The term 'security' means any note, stock, treasury stock, bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit-sharing agreement, collateral-trust certificate, pre-organization certificate or subscription, transferable share, investment contract, voting-trust certificate, certificate of deposit for a security, fractional undivided interest in oil, gas, or other mineral rights, or, in general, any interest or instrument commonly known as a 'security', or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase, any of the foregoing.'
And plaintiffs contend that each of the defendants is an investment company as defined in the Investment Company Act and cite Sec. 3(a), 15 U.S.C.A. § 80a-3:
'Sec. 3(a) When used in this title, 'investment company' means any issuer which-- '(1) is or holds itself out as being engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting, or trading in securities;
******
* * *
'(3) is engaged or proposes to engage in the business of investing, reinvesting, owning, holding, or trading in securities, and owns or proposes to acquire investment securities having a value exceeding 40 per centum of the value of such issuer's total assets (exclusive of Government securities and cash items) on an unconsolidated basis.'
The defendants contend that their annuity contracts are exempt from the provisions of the Securities Act and cite Secs. 3(a) and (8), 15 U.S.C.A. § 77c:
'Sec. 3. (a) Except as hereinafter expressly provided, the provisions of this subchapter shall not apply to any of the following classes of securities:
******
* * *
'(8) Any insurance or endowment policy or annuity contract or optional annuity contract, issued by a corporation subject to the supervision of the insurance commissioner, bank commissioner, or any agency or officer performing like functions, of any State or Territory of the United States or the District of Columbia;'
And defendants contend that they are not Investment Companies and quote as follows from Sec. 3 and Sec. 2 of that Act, 15 U.S.C.A. §§ 80a-3, 80a-2:
'(c) Notwithstanding subsections (a) and (b), none of the following persons is an investment company within the meaning of this title: '(3) Any bank or insurance company; * * *.' Sec. 2 '(a) When used in this title, unless the context otherwise requires-- * * * '(17) 'Insurance company' means a company which is organized as an insurance company, whose primary and predominant business activity is the writing of insurance or the reinsuring of risks underwritten by insurance companies, and which is subject to supervision by the insurance commissioner or a similar official or agency of a State; * * *.'
And defendants further rely on the contention that the McCarran Act, 15 U.S.C.A. § 1011, vests exclusive regulatory jurisdiction over them in the Insurance Superintendent of the District of Columbia and the Insurance Commissioners of the several states where they are authorized to do business, and cite the following material parts of that Act:
'Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That the Congress hereby declares that the continued regulation and taxation by the several States of the business of insurance is in the public interest, and that silence on the part of the Congress shall not be construed to impose any barrier to the regulation or taxation of such business by the several States. 'Sec. 2. (a) The business of insurance, and every person engaged therein, shall be subject to the laws of the several States which relate to the regulation or taxation of such business. '(b) No Act of Congress shall be construed to invalidate, impair, or supersede any law enacted by any State for the purpose of regulating the business of insurance, or which imposes a fee or tax upon such business, unless such Act specifically relates to the business of insurance: Provided, That after January 1, 1948, the Act of July 2, 1890, as amended, known as the Sherman Act, and the Act of October 15, 1914, as amended, known as the Clayton Act, and the Act of September 26, 1914, known as the Federal Trade Commission Act, as amended, shall be applicable to the business of insurance to the extent that such business is not regulated by State law.
******
* * *
'Sec. 5. As used in this Act, the term 'State' includes the several States, Alaska, Hawaii, Puerto Rico, (Guam) and the District of Columbia.'
The logic of the law applied to the established facts seems to bring the variable annuity contract within the purpose and intendment of the Securities Act, and the defendants within the terms and plan of the Investment Company Act. This Court would feel constrained to so hold if it were not for the clear and explicit language of the McCarran Act and the fact that the defendants are licensed and regulated by the insurance departments of this District and the States where they operate.
Because the variable annuities were not in existence or general use when the statutes mentioned were enacted, there is no definite expression of Congressional intention or opinion regarding them. When, however, the defendants produced and put into use a contract which abandoned the provisions of conventional insurance policies with fixed-dollar benefits, guaranteed by the company, and created a reserve fund for investment mainly in common stocks, with provision for payment of annuity benefits subject to gains and losses of the fund, they created a hybrid policy-contract with characteristics of both its insurance and its investment progenitors.
It was natural, then, for the officers of SEC to question whether this novel contract should be classified as insurance for an annuity, or as a security for an investment, and by what authority it should be regulated. As stated, if the companies issuing the novel contract were not chartered, licensed and regulated by District and State authorities, and if Congress had not passed the McCarran Act, the questions raised by SEC would be answered by applying the rules of statutory construction to the Securities Act of 1933 and the Investment Company Act of 1940, and, in the opinion of this Court, such construction would bring the defendants within the purview and purpose of those statutes.
When, however, the Congress passed the McCarran Act and set at naught the decision of the Supreme Court in the case of United States v. South-Eastern Underwriters Association, 1944, 322 U.S. 533, 64 S.Ct. 1162, 88 L.Ed. 1440, it excluded all Federal agencies from regulatory jurisdiction over all insurance companies and insurance business except such agencies as it then excepted or might in the future except. SEC has not been made an exception.
In view of the fact that the defendants have been chartered as insurance companies by the District of Columbia and their questioned contracts have been approved by the Insurance Superintendent of the District, and by the insurance departments of certain states, this Court is constrained to hold that the broad, explicit and impelling language of the McCarran Act makes them exempt from Federal regulation unless and until Congress provides otherwise.
The arguments which plaintiffs advance here should be made to the Congress. The Supreme Court has recognized that it was the intention of Congress to give support to the existing and future State systems for regulating the business of insurance 'by removing obstructions which might be thought to flow from its own power, whether dormant or exercised, except as otherwise expressly provided in the Act itself or in future legislation'. Prudential Insurance Co. v. Benjamin, 1946, 328 U.S. 408, 430, 66 S.Ct. 1142, 1155, 90 L.Ed. 1342.
The plaintiffs base their complaint on the contention that the contracts issued by defendants are securities evidencing investments and, therefore, not within the exemptions granted to insurance policies, regardless of what the defendants and their contracts are called. The defendants base their defense on the contention that they are duly chartered insurance companies, that the contracts they issue are insurance policies, and that, therefore, they and their contracts are not subject to the Securities Act, the Investment Company Act, the regulations of SEC, and are under the full protection of the McCarran Act. This Court cannot sustain or overrule either contention, entirely. The contract is novel and will not fit exactly into either of the categories suggested. The judgment of the Court is, therefore, what in ring-side parlance would be called a 'split decision'. The contract in issue is like a horse on the range that has not been branded or corralled. In view of the language of the McCarran Act, it seems to this Court that Congress should do the branding. If the question should be asked: 'Why Congress?', the answer would be: 'It asked for it.'
The legislative history of the McCarran Act, as well as its language, shows clearly that its purpose was to keep control of insurance business in the States. As one Senator said, 'We want the business left in the control of the States, unless, by enactment in the future, we specifically state that we do not want something they are doing to be continued'. (Hearings p. 159)
The plaintiffs contend that the defendants, with the approval of some District and State insurance officials, placed themselves in the insurance field, but that the business which they are doing does not warrant their continuance in that field. The Congress, however, has barred all Federal agencies from access to that field, except those specifically named, and SEC has not been named. The broad and exclusive effect of the McCarran Act has been sustained by the Supreme Court and by the Courts of Appeal. Maryland Casualty Co. v. Cushing, 1954, 347 U.S. 409, 413, 74 S.Ct. 608, 98 L.Ed. 806; American Hospital & Life Insurance Company v. Federal Trade Commission, 5 Cir., 1957, 243 F.2d 719; National Casualty Co. v. Federal Trade Commission, 6 Cir., 1957, 245 F.2d 883 . The McCarran Act is not the only reason for Congressional action. The definitive classification of variable annuities will involve the consideration of broad principles of public policy, the effect of such classification on the insurance business and on the investment business, and on the balance of powers between State and Federal agencies,-- all of which are matters that generally lie within the province of the legislative function. This Court may be considered old-fashioned, but it still looks upon our Constitutional separation of powers with great respect, and views with apprehension the usurpation of the powers of one branch of government by any other.
At trial, parties, counsel and Court seemed to recognize that there were issues involved in this controversy which would have to be determined by Congress, no matter what decision in this case was made by this or any other court-- that Congress might have to provide for new rules and regulations covering variable annuities. It was also recognized that there is urgent need for a prompt solution of the entire problem. If the trial and decision of this case is not conclusive of the issue, it is reasonable to hope that it may be conducive to a determination. In any event, a legal analysis had to be made and the conflicting interests had to be heard. The record of this case, including the transcript of testimony, exhibits and excellent briefs of able and experienced counsel, should be of great service.
The motion of NASD for leave to intervene should be, and is, sustained. It is apparent that its business may be affected by this case. The essence of the intervenor-plaintiff's contention is that all dealers in securities should be subject to the same regulations. It contends that a company which buys and holds securities for its own account, and issues annuity policies calling for payments in fixed-dollar amounts, is an insurance company, but that a company which buys and holds securities for the account of others, and issues to its customers grants of participation rights or interests in such securities, subject to profits and losses, is a securities dealer.
Reverting again to the simile of the range horse, an attractive new creature has been discovered on the financial range. It has some of the markings of the insurance herd and also some of the markings of the investment herd, but it has not been branded. It has sought shelter in the insurance corral. But the security dealers say it should be in the investment corral. The contending parties appeal to this Court to brand the creature for proper classification. This Court, however, finds that Congress has kept the only branding iron. It seems clear to this Court, therefore, that Congress should determine whether the creature should be branded INS or INV (Insurance or Investment), or whether it should have some other brand, such as INSV, and whether it should be placed in one or the other corral, or have a new corral of its own. Congress, it seems, is the proper agency to determine what classification would best enable the creature to serve the national economy.
In spite of the fact that the variable annuity applies the annuity principle directly to a new area of investment, common stocks, and pays to the annuitant, not fixed-dollar amounts, but amounts determined by investment experience, still the contract is denominated an annuity policy, and the companies selling variable annuities are chartered as life insurance companies. In view of the language and history of the McCarran Act, such contracts and companies are subject only to the regulations of the insurance departments of the District of Columbia and the States where such companies are licensed to do business. It is the judgment of this Court that Congress only can make such contracts and companies amenable to the regulations of SEC.
Judgment for defendants. Complaint dismissed. (Image Omitted)
Variable Annuity Life Insurance Company
THE MONTHLY INCOME
Agrees to pay at its Home Office a variable lifeannuity consisting of a series of variable monthlyinstallments
As set forth in the Benefits Payable To The AnnuitantProvisions commencing on
MATURITY DATE
November 1, 1986 to
THE ANNUITANT
John Doe if then living, and subsequent monthlyinstallments on the same day of each month thereafteruntil 120 monthly installments, including the first,shall have been paid, and so long thereafter as theAnnuitant may live, or in lieu of such monthlyinstallments, the Annuitant may within 30 days prior toThe Maturity Date, elect any other option as set forthin the Benefits Payable To The Annuitant Provisions orupon receipt at the Home Office of the due proof of theinterest of claimant and that the death of theAnnuitant has occurred prior to The Maturity Date, theCompany will pay
THE DEATH BENEFIT
the following amounts of life insurance in addition tothe amount of the cash value of this policy determinedin accordance with Provision 14
Schedule of Life Insurance
Policy
Policy
Policy
Year
Amount
Year
Amount
Year
Amount
1
$4,800.00
8
0
16
0
2
3,840.00
9
0
17
0
3
2,880.00
10
0
18
0
4
1,920.00
11
0
19
0
5
960.00
12
0
20
0
6
0
13
0
21
0
7
0
14
0
and
0
15
0
thereafter
0
THE BENEFICIARY
to Mary Doe
Any indebtedness to the Company secured by this policywill be deducted in any settlement hereunder.
OPTIONAL DATES FOR MATURITY
The Annuitant may elect to change the date ofcommencement of the annuity installments in the mannerprovided in Provision 5 (d) hereof.
PREMIUMS
This policy is issued in consideration of the Paymentof $1,000.00 (of which 960.40 is the Basic AnnuityPremium) the receipt of which is hereby acknowledgedand, unless this be a single premium policy, thereshall be due and payable a like sum to the Company onor before the 1st day of every November each year untilpremiums for 30 full years from the date of issuehereof shall have been paid or until the prior death ofthe Annuitant, except that the amount of premiumpayable on or after shall be This policy is issued andaccepted subject to all the conditions and provisionsset forth on the subsequent pages hereof, which arehereby made a part of this contract. In WitnessWhereof, the Variable Annuity Life Insurance Companyhas caused this policy to be executed at its HomeOffice in Washington, D.C. this 1st day of November,1956, which is the date of issue of this policy.
Countersigned
Specimen Registrar
ROBERT A. CRICHTON President
Variable Life Annuity Benefits Payable Commencing at aTime between Age 50 and
70, Selected by the Annuitant. Life Insurance Benefitsif provided in
Schedule of Insurance. Benefits for Disability ifprovided by Rider. Premiums
Payable Until Maturity Date, or by Single Payment.
ANNUITY PAYMENTS PROVIDED BY THIS POLICY ARE VARIABLEAND ARE NOT GUARANTEED AS
TO FIXED DOLLAR AMOUNT
"DEFERRED VARIABLE ANNUITY POLICY"
GENERAL PROVISIONS
1. PREMIUM PAYMENT
Premiums are due and payable in advance at the HomeOffice S of the Company but may be paid to anauthorized agent of the Company in exchange for theCompany's receipt therefor signed by the Presidentor the Secretary and countersigned by the agent asevidence of such payments. Premiums may be paidannually, semi-annually, quarterly or monthly, at therates in use by the Company at the date of issuehereof. The mode of premium payment may be changed onany policy anniversary. The payment of any premiumshall not continue this policy in force beyond the datewhen the next premium is due and payable, except asotherwise provided herein.
2. GRACE PERIOD
Any premium not paid on or before the date it falls dueis in default, but a grace period of 31 days, withoutinterest, will be allowed for the payment of everypremium after the first, during which period thispolicy shall continue in force. If death occurs withinthe grace period, any premium then due and unpaid shallbe deducted from the amount otherwise payablehereunder, which shall be determined as though suchpremium had in fact been paid when due.
3. REINSTATEMENT
This policy, unless surrendered for its cash value orunless annuity benefit payments have commenced, may bereinstated at any time within three years after date ofdefault in payment of premium, upon presentation ofevidence of insurability satisfactory to the Company,the payment or reinstatement of any indebtedness atdate of default, the payment of all premiums in arrearsand the payment of interest on such indebtedness and onall unpaid premiums at the rate of 3% per annum. Thepayment of all past due premiums will be applied inaccordance with the table under Provision 4 at theaccumulation unit value as of the last day of thecalendar month in which paid.
4. ACCUMULATION UNITS FROM PREMIUM PAYMENTS
(a) The percentages of Basic Annuity Premium shown inthe following table, hereby defined as the net premium,will be applied as of the last day of the calendarmonth in which the total premium is paid, to provideaccumulation units on the basis of the then currentvalue of such units as specified in (b) of thisprovision.
Percentage of Basic Annuity Premium Applied toProvide Accumulation Units
Policy Year
Policy Year
Basic
Basic
Annuity
Annuity
Premium Due
Percentage
Premium Due
Percentage
1st
44.79
5th
87.17
2nd
85.27
6th through 10th
89.00
3rd
85.82
11th year and after
92.00
4th
86.45
(b) The number of accumulation units credited by anysuch application under (a) above, shall be determinedby dividing the number of dollars so applied by thedollar value of one accumulation unit, as defined inthe Valuation Provisions. The number of accumulationunits so determined shall not be affected by anysubsequent change in the dollar value of oneaccumulation unit. The dollar value of an accumulationunit may vary from month to month as set forth in theValuation Provisions.
(c) The Company will notify the Annuitant at least oncein each calendar year, of the total number ofaccumulation units in force under this policy and thedollar value of such a unit.
BENEFITS PAYABLE TO THE ANNUITANT PROVISIONS
5. ANNUITY OPTIONS
(a) Alternative Selection: In lieu of the life annuitypayments with a minimum of 120 monthly installmentsprescribed on the face of the policy (being Option Bhereunder) the Annuitant may elect to receive paymentsin accordance with Options A, or C as set forth in thefollowing tables:
(b) Description of Options:
OPTION A--Straight Life Annuity--An annuity payable inmonthly installments during the lifetime of the payeeand ceasing with the last payment due prior to thedeath of the payee.
Dollar Amount of First Monthly Installment Payable forEach $1,000 of Value of Accumulation Units Applied
Age of Payee
Male
Female
50
$4.60
$4.28
51
4.69
4.36
52
4.79
4.43
53
4.89
4.51
54
5.00
4.60
55
5.12
4.69
56
5.24
4.79
57
5.37
4.89
58
5.52
5.00
59
5.67
5.12
60
5.83
5.24
61
6.00
5.37
62
6.18
5.52
63
6.38
5.67
64
6.59
5.83
65
6.81
6.00
66
7.06
6.18
67
7.32
6.38
68
7.60
6.59
69
7.90
6.81
70
8.22
7.06
OPTION B--Life Annuity with 120 Monthly InstallmentGuaranteed--An annuity payable monthly during thelifetime of the payee with a guarantee that if, at thedeath of the payee, installment payments have been madefor less than 10 years, the annuity payments will becontinued to the Beneficiary during the remainder ofthe 10 year period or, if elected, the then presentvalue of the current dollar amount of the annuitypayments, commuted on the basis of 3 1/2% interestcompounded annually for such remainder of the 10 yearperiod, shall be paid in a lump sum. If any Beneficiarydies while receiving annuity payments, the then presentvalue of the current dollar amount of such annuitypayments, commuted on the basis of 3 1/2% interestcompounded annually, for such remainder of the 10 yearperiod, shall be paid in a lump sum to the estate ofthe Beneficiary.
Dollar Amount of First Monthly Installment Payablefor Each $1,000 of Value of Accumulation UnitsApplied
Age of Payee
Male
Female
50
$4.55
$4.26
51
4.64
4.32
52
4.73
4.40
53
4.82
4.47
54
4.92
4.55
55
5.02
4.64
56
5.13
4.73
57
5.24
4.82
58
5.36
4.92
59
5.49
5.02
60
5.62
5.13
61
5.76
5.24
62
5.90
5.36
63
6.05
5.49
64
6.21
5.62
65
6.37
5.76
66
6.53
5.90
67
6.71
6.05
68
6.89
6.21
69
7.07
6.37
70
7.25
6.53
OPTION C- Joint and LastSurvivor Life Annuity-An annuity payable monthly duringthe joint lifetime of the primary payee and anotherperson, herein called the secondary payee, and duringthe survivor's remaining lifetime.
Dollar Amount of First Monthly Installment Payable forEach
$1,000 of Value of Accumulation Units Applied
Male
Female
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
35
39
3.59
3.60
3.61
3.61
3.62
3.63
3.63
3.64
3.64
3.65
3.69
36
40
3.62
3.63
3.64
3.64
3.65
3.66
3.66
3.67
3.68
3.68
3.72
3.73
37
41
3.65
3.66
3.67
3.68
3.68
3.69
3.70
3.70
3.71
3.72
3.76
3.77
3.77
38
42
3.68
3.69
3.70
3.71
3.72
3.73
3.73
3.74
3.75
3.75
3.80
.80
.81
3.82
39
43
3.71
3.72
3.73
3.74
3.75
3.76
3.77
3.78
3.78
3.79
3.84
3.85
3.85
3.86
3.86
40
44
3.74
3.75
3.76
3.77
3.79
3.80
3.81
3.81
3.82
3.83
3.88
3.89
3.90
3.90
3.91
3.92
41
45
3.77
3.78
3.80
3.81
3.82
3.83
3.84
3.85
3.86
3.87
3.92
3.93
3.94
3.95
3.96
3.96
3.97
42
46
3.80
3.82
3.83
3.84
3.86
3.87
3.88
3.89
3.90
3.91
3.97
3.98
3.99
4.00
4.00
4.01
4.02
4.03
43
47
3.83
3.85
3.86
3.88
3.89
3.91
3.92
3.93
3.95
3.96
4.01
4.03
4.04
4.05
4.05
4.06
4.07
4.08
4.09
44
48
3.86
3.88
3.90
3.92
3.93
3.95
3.96
3.98
3.99
4.00
4.06
4.07
4.09
4.10
4.11
4.12
4.12
4.13
4.14
4.15
45
49
3.89
3.91
3.93
3.95
3.97
3.99
4.00
4.02
4.03
4.05
4.11
4.12
4.14
4.15
4.16
4.17
4.18
4.19
4.20
4.21
4.22
46
50
3.92
3.95
3.97
3.99
4.01
4.03
4.05
4.06
4.08
4.09
4.16
4.18
4.19
4.20
4.22
4.23
4.24
4.25
4.26
4.27
4.28
47
51
3.96
3.98
4.00
4.03
4.05
4.07
4.09
4.11
4.13
4.14
4.21
4.23
4.24
4.26
4.28
4.29
4.30
4.31
4.32
4.33
4.34
48
52
3.99
4.01
4.04
4.06
4.09
4.11
4.13
4.15
4.17
4.19
4.26
4.28
4.30
4.32
4.33
4.35
4.36
4.38
4.39
4.40
4.41
49
53
4.02
4.05
4.07
4.10
4.13
4.15
4.17
4.20
4.22
4.24
4.32
4.34
4.36
4.38
4.40
4.41
4.43
4.45
4.46
4.47
4.49
50
54
4.05
4.08
4.11
4.14
4.17
4.19
4.22
4.24
4.27
4.29
4.37
4.40
4.42
4.44
4.46
4.48
4.50
4.52
4.53
4.55
4.56
51
55
4.08
4.11
4.14
4.17
4.20
4.23
4.26
4.29
4.32
4.35
4.43
4.45
4.48
4.50
4.53
4.55
4.57
4.59
4.61
4.62
4.64
52
56
4.11
4.14
4.18
4.21
4.24
4.28
4.31
4.34
4.37
4.40
4.48
4.51
4.54
4.57
4.59
4.62
4.64
4.66
4.68
4.70
4.72
53
57
4.14
4.17
4.21
4.25
4.28
4.32
4.35
4.39
4.42
4.45
4.54
4.57
4.60
4.63
4.66
4.69
4.72
4.74
4.76
4.78
4.80
54
58
4.17
4.20
4.24
4.28
4.32
4.36
4.40
4.43
4.47
4.51
4.60
4.63
4.67
4.70
4.73
4.76
4.79
4.82
4.84
4.87
4.89
55
59
4.19
4.23
4.28
4.32
4.36
4.40
4.44
4.48
4.52
4.56
4.65
4.69
4.73
4.77
4.80
4.84
4.87
4.90
4.93
4.96
4.98
56
60
4.26
4.31
4.35
4.40
4.44
4.49
4.53
4.57
4.61
4.71
4.75
4.80
4.84
4.88
4.91
4.95
4.99
5.02
5.05
5.08
57
61
4.34
4.39
4.43
4.48
4.53
4.58
4.62
4.67
4.77
4.82
4.86
4.91
4.95
4.99
5.03
5.07
5.11
5314
5.17
58
62
4.42
4.47
4.52
4.57
4.62
4.67
4.72
4.83
4.88
4.93
4.98
5.03
5.07
5.12
5.16
5.20
5.24
5.28
59
63
4.51
4.56
4.61
4.67
4.72
4.77
4.88
4.94
4.99
5.05
5.10
5.15
5.20
5.25
5.29
5.34
5.38
60
64
4.60
4.65
4.71
4.77
4.83
4.94
5.00
5.06
5.12
5.18
5.23
5.29
5.34
5.39
5.44
5.49
61
65
4.69
4.75
4.82
4.88
4.99
5.06
5.12
5.19
5.25
5.31
5.37
5.43
5.49
5.54
5.59
62
66
4.80
4.86
4.93
5.05
5.12
5.19
5.26
5.33
5.39
5.46
5.52
5.59
5.65
5.70
63
67
4.91
4.98
5.10
5.18
5.25
5.33
5.40
5.47
5.55
5.62
5.69
5.75
5.82
64
68
5.03
5.15
5.23
5.31
5.39
5.47
5.55
5.63
5.71
5.79
5.86
5.93
65
69
5.29
5.37
5.46
5.55
5.63
5.72
5.80
5.89
5.97
6.05
66
70
5.43
5.52
5.62
5.71
5.80
5.89
5.99
6.08
6.16
67
71
5.59
5.69
5.79
5.89
5.99
6.09
6.18
6.28
68
72
5.75
5.86
5.97
6.08
6.18
6.29
6.40
69
73
5.93
6.05
6.16
6.28
6.40
6.51
70
74
6.12
6.25
6.37
6.50
6.62
71
75
6.33
.46
6.60
6.74
72
76
6.55
6.70
6.84
73
7
6.79
6.95
74
78
7.05
75
79
(c) Description of Tables: The tables given in thisprovision show the dollar amount of the first monthlyinstallment payable for each $1,000 of value ofaccumulation units applied at the accumulation unitvalue as of the last day of the second calendar monthimmediately preceding the effective date of theannuity. The rates shown in the tables are based on theProgressive Annuity Mortality Table, females beingregarded as 4 years younger than the actual age, and 31/2% interest per annum and they are equal to the netrates which would apply to a corresponding fixed dollarannuity, divided in each case by the factor of 1.03093.Ages shown in the tables are ages nearest the birthdayof the Annuitant on the effective date of the annuity.
(d) Privilege to Commence Income Payments at Earlier orLater Date: Although this policy is written to providefor monthly installments commencing on the MaturityDate, the Annuitant may, upon written request to theCompany, elect to begin receiving monthly installmentson an anniversary prior to the Maturity Date but notearlier than age 50 nearest birthday of the Annuitant,or to continue premium payments of the amount andpayable in the manner specified herein, and so deferthe commencement of monthly installments until anyanniversary subsequent to the Maturity Date but notlater than age 70 nearest birthday of the Annuitant.The election to begin receiving monthly installmentsprior to the Maturity Date shall not be available ifthe amount of the first monthly installment would beless than $25.00 and the option to continue premiumpayments beyond the Maturity Date shall not beavailable if on the Maturity Date any benefits arebeing allowed under the Total and Permanent DisabilityRider, if any, attached to this policy.
(e) Variable Annuity Installments: The dollar amountsof the annuity installments under any of the options ofthis provision are not predetermined, and may changefrom month to month. The method of calculating suchdollar amounts is described in the ValuationProvisions.
BENEFITS PAYABLE TO THE BENEFICIARY PROVISIONS
6. SELECTION OF OPTIONS BY ANNUITANT
The Annuitant shall have the right, subject to theterms and conditions set forth in these provisions, toelect that the whole or a specified part of the netproceeds which would otherwise be payable in one sum athis death, be payable in accordance with any of thesettlement options and to revoke or change any suchelection. Any such election must be approved by theCompany and endorsed on the policy. If a settlementoption has been elected by the Annuitant, no payeeshall have the right to encumber, alienate oranticipate any of the payments thereunder, or to changethe manner of settlement in any way, except that thepayee shall have the right to take in one sum thecommuted value of any remaining installments under theFirst Option or to withdraw any part of the proceedsremaining with the Company under the Third or FourthOption hereinafter provided, if such right has beengiven by the Annuitant in the election. The Company maydefer payment of such amounts for a period of not morethan six months.
7. SELECTION OF OPTIONS BY THE BENEFICIARY
In case the Annuitant has not elected a settlementoption as provided above, the Beneficiary may within 60days, after the Annuitant's death, elect, in lieuof payment in one sum, that the amount or any partthereof due in settlement of this policy be appliedunder any one of the settlement options hereinafterprovided or in any other manner that may be agreed uponwith the Company, but any such election may not berevoked without the Company's consent. Thesettlement options shall not be available to anyassignee or to other than a natural person entitled toreceive proceeds in his or her own right. The minimumamount of proceeds which may be applied under anysettlement option for any payee shall be $2,500 andproceeds of a smaller amount due any payee will be paidin one sum.
8.SUPPLEMENTARY CONTRACT
At such time as one of the settlement options becomesoperative, this policy shall be surrendered to theCompany in exchange for a Supplementary Contractproviding for the manner of settlement elected. Thepayee under a Supplementary Contract shall berestricted to the Beneficiary, and such SupplementaryContract may not be assigned.
9. DELAYED SETTLEMENTS
The dollar amount of all death benefits shall bedetermined as of the last day of the second calendarmonth immediately preceding the date of the receipt ofnotice of death, and remain in the same dollar amountuntil paid or applied under one of the settlementoptions.
10. PROTECTION FROM CREDITORS
Neither the proceeds nor the payments under anysettlement options shall be subject to anyBeneficiary's debts, contracts or engagements, norto any judicial process to levy upon or attach the samefor payment thereof.
11. SETTLEMENT OPTIONS
(a) Description of Options:
FIRST OPTION: Installments for Designated Period -- Anannuity payable monthly for the number of yearsselected which shall be from one to thirty years.
Dollar Amount of First Monthly Installment Payable forEach $1,000 of Death
Benefit
SECOND OPTION: Life Annuity with 120 or 240 Monthly Installments Guaranteed -- An annuity payable monthly during the lifetime of the payee with a guarantee that if, at death of the payee, installment payments have been made for less than 10 years or 20 years, as selected, the annuity payments will be continued during the remainder of the selected period.
Years of
Amount of First
Payment
Monthly Installment
1
$82.11
2
41.76
3
28.32
4
21.60
5
17.57
6
14.89
7
12.98
8
11.54
9
10.43
10
9.54
11
8.81
12
8.21
13
7.70
14
7.26
15
6.89
16
6.56
17
6.27
18
6.02
19
5.79
20
5.58
21
5.40
22
5.23
23
5.08
24
4.94
25
4.81
26
4.70
27
4.59
28
4.49
29
4.40
30
4.31
Dollar Amount of First MonthlyInstallment Payable for Each $1,000
of Death Benefit
Life Annuity with
Life Annuity with
Age
10 Yrs. Payments
20 Yrs. Payments
Guaranteed
Guaranteed
Male
Female
Male
Female
35
$3.69
$3.55
$3.66
$3.53
36
3.73
3.58
3.70
3.56
37
3.77
3.62
3.74
3.60
38
3.81
3.65
3.78
3.63
39
3.86
3.69
3.82
3.66
40
3.91
3.73
3.86
3.70
41
3.96
3.77
3.91
3.74
42
4.01
3.81
3.95
3.78
43
4.07
3.86
4.00
3.82
44
4.13
3.91
4.05
3.86
45
4.19
3.96
4.10
3.91
46
4.26
4.01
4.16
3.95
47
4.32
4.07
4.21
4.00
48
4.40
4.13
4.27
4.05
49
4.47
4.19
4.32
4.10
50
4.55
4.26
4.39
4.16
51
4.64
4.32
4.45
4.21
52
4.73
4.40
4.51
4.27
53
4.82
4.47
4.57
4.32
54
4.92
4.55
4.64
4.39
55
5.02
4.64
4.70
4.45
56
5.13
4.73
4.77
4.51
57
5.24
4.82
4.83
4.57
58
5.36
4.92
4.90
4.64
59
5.49
5.02
4.96
4.70
60
5.62
5.13
5.02
4.77
61
5.76
5.24
5.08
4.83
62
5.90
5.36
5.14
4.90
63
6.05
5.49
5.20
4.96
64
6.21
5.62
5.25
5.02
65
6.37
5.76
5.30
5.08
66
6.53
5.90
5.35
5.14
67
6.71
6.05
5.39
5.20
68
6.89
6.21
5.42
5.25
69
7.07
6.37
5.45
5.30
70
7.25
6.53
5.48
5.35
THIRD OPTION: Installments of a Designated Amount -- The amount of death benefit may be paid in equal annual, semi-annual, quarterly or monthly installments of a designated dollar amount (not less than $75.00 per annum for each $1,000 of original amount of death benefit left with the Company) until such amount of death benefit, multiplied from month to month by the net investment factor, determined in accordance with the Valuation Provisions, and decreased by the amount of the installments paid, is exhausted. The final installment shall be only in the amount of any remaining balance.
FOURTH OPTION: Net Investment Income -- The amount of death benefit may be left with the Company and an amount will be paid annually, semi-annually, quarterly or monthly, as selected, which will be equal to the net investment rate for the period of such payment, determined in accordance with theValuation Provisions, applied to the amount of the remaining balance of death benefit. If the net investment rate is negative, no such payment shall be made and the amount of the remaining balance of death benefit will be reduced by the product of such balance and such negative rate. If at any time the amount of remaining balance of death benefit is reduced to $1,000 or less, such amount shall then be paid in one sum.
(b) Description of Tables: The Tables given in the provision for the First and Second Options show the dollar amount of the first monthly installment payable for each $1,000 of death benefit. The rates shown in the tables under the First and Second Settlement Options are based on 3 1/2% interest per annum, and in addition, for the Second Option, are based on the Progressive Annuity Mortality Table; females being regarded as 4 years younger than the actual age; and they are equal to the net rates which would apply to a corresponding fixed dollar annuity, divided in each case by the factor of 1.03093. Ages shown in the table of the Second Option are ages nearest the birthday of the payee on the effective date of the option.
(c) Variable Annuity Installments: The dollar amounts of the annuity installments under the First and Second Options of this provision are not predetermined, and may change from month to month. The method of calculating such dollar amounts is described in the Valuation Provisions.
12. DATES OF PAYMENT OF SETTLEMENT OPTIONS
The first installment payment under the First, Secondor Third Settlement Option shall be made within 30 daysafter approval of claim for settlement, and subsequentinstallment payments shall be made periodically inaccordance with the manner of payment elected. Thefirst payment under the Fourth Settlement Option shallbe made at the end of the period selected, measuredfrom the date of approval of the claim for settlement.
13. DEATH OF PAYEE
At the death of any payee, after a settlement optionbecomes operative, the then present value of any unpaidinstallments certain under the First or Second Option,commuted on the basis of 3 1/2% interest compoundedannually, or any then remaining balance of deathbenefit, under the Third or Fourth Options, multipliedby the applicable net investment factor, shall be paidin one sum to the executors or administrators of thepayee unless other provision shall have been previouslymade and approved by the Company.
NON-FORFEITURE BENEFITS PROVISIONS
14. CASH VALUE
The policy may be surrendered prior to the death of theAnnuitant and before the first due date of any lifeannuity benefit payment. Upon application forsurrender, the Company will determine the cash value,which will be in an amount equal to the dollar value ofthe accumulation units of the policy as of the last dayof the month in which application for surrender isreceived. The Company will then pay, upon due surrenderof the policy, the cash value, less any policyindebtedness and less the amount shown in the following
Table:
Number of Policy Years
Premiums Paid or Years
Deductions from
from Date of Issue if this
Dollar Value of
be a Single Premium Policy
Accumulation Units
1 or less
$25
Over 1 but less than 2
20
Over 2 but less than 3
15
Over 3 but less than 4
10
Over 4 but less than 5
5
5 or more
0
15. POLICY LOANS
The Company will loan, upon assignment hereof, at anytime prior to the discontinuance of premium paymentsunder the policy, any amount which with interest to thenext succeeding policy anniversary shall not exceed thelesser of (i) the cash value of the policy at the dateof the loan and (ii) the total of the premiums paidunder the policy prior to the date of the loan. Alloutstanding indebtedness on account of any previouspolicy loans shall be paid out of any new loan.Indebtedness shall include the principal and accruedinterest of policy loans.
Interest on a policy loan will accrue at the rate of 3%per annum payable on each policy anniversary. Unpaidinterest will be added to the principal and bearinterest at the same rate. If the total indebtednessherein shall at any time equal or exceed the cashvalue, the policy shall become of no value 31 daysafter notice has been mailed to the last known addressof the Annuitant and any assignee of record.
Outstanding indebtedness may be repaid at any timeprior to the discontinuance of premium payments underthe policy. Outstanding indebtedness will be deductedfrom the amount of any death benefit or cash valuepayable under the policy. If there is outstandingindebtedness when premium payments are discontinuedunder the policy, either at or prior to its maturitydate, the number of accumulation units then credited tothe policy shall be reduced by the number of theaccumulation units, based on their then current value,equivalent to the amount of outstanding indebtednessand such outstanding indebtedness will be cancelled.
Such a number of accumulation units which, based ontheir value at the effective date of a policy loan, areequivalent to the amount of such policy loan, shall beallocated to the policy loan account and, during theperiod of the loan, their unit value shall bedetermined as provided in the Valuation Provisions.
Upon repayment of any outstanding indebtedness, thenumber of accumulation units under this policyallocated to the policy loan account, shall be reducedby the number of such units equal in value to theamount of such repayment and the number of accumulationunits under this policy which are not allocated to thepolicy loan account shall be increased by the number ofaccumulation units equal in value, (at the accumulationunit value as of the last day of the calendar month inwhich repayment is made) as determined by the saveationProvisions, to the amount of such repayment.
16. DEFERMENT OF CERTAIN PAYMENTS
The Company reserves the right to defer the granting ofa loan, or the payment of a cash surrender value, for aperiod not exceeding six months from the dateapplication therefor is received at the Home Office,except a loan to be applied to the payment of a premiumon the policy.
17. AUTOMATIC BENEFIT
If, on the expiration of the grace period for thepayment of any required premium in default prior to thematurity date, no non-forfeiture option has beenelected, the policy shall continue in force as apaid-up deferred annuity with the number ofaccumulation units then credited to the policy reducedby the number of accumulation units (based on theirthen current value) equivalent to any policyindebtedness and the deduction set forth in the tableunder Provision 14. The insurance benefits shall ceaseimmediately upon discontinuance of required premiumpayments.
VALUATION PROVISIONS
18. NET INVESTMENT RATE AND NET INVESTMENT FACTOR
The net investment rate applicable each month toaccumulation units and annuity units shall be equal tothe adjusted gross investment rate for such monthdecreased by .0015. Such adjusted gross investment rateshall be a percentage rate determined each month fromthe total investment experience of the Company andshall be based on the investment income and capitalgains and losses, realized and unrealized, and less thesum of federal income taxes and other taxes, if suchother taxes are measured by investment income andcapital gains and losses, realized or unrealized, oreither of them, accrued on policies of this class. Suchadjusted gross investment rate shall be a positive or anegative rate, as the case may be. The net investmentfactor shall be the sum of 1.0000 plus the netinvestment rate.
19. ACCUMULATION UNIT
The dollar value of an accumulation unit as of June 30,1956, was fixed at $1.00. The dollar value of anaccumulation unit as of the last day of any calendarmonth thereafter shall be determined by multiplying thedollar value of an accumulation unit as of the last dayof the immediately preceding calendar month by the netinvestment factor for the calendar month for which theaccumulation unit value is being determined. The dollarvalue of an accumulation unit as of any other datethereafter is equal to the corresponding value as ofthe last day of the calendar month immediatelypreceding the month in which such date occurs. Thevalue of an accumulation unit allocated to the policyloan account shall remain the same during the period ofthe loan as existed on the effective date of the loan.
20. ANNUITY UNITS
The number of annuity units for any annuity payableunder the Benefits To The Annuitant Provisions or underthe First or Second Settlement Option, shall be equalto the dollar amount of the first monthly annuityinstallment divided by the value of an annuity unit asof the effective date of the annuity. Once annuitypayments have begun, the number of annuity units willremain fixed.
21. ANNUITY UNIT VALUE
The value of an annuity unit on June 30, 1956, wasfixed at $1.00. The value of an annuity unit for anymonth thereafter shall be determined by multiplying thevalue of an annuity unit for the preceding month by theproduct of (a) .9971 and (b) the net investment factorfor the second calendar month preceding the month forwhich the value of an annuity unit is being calculated.
22. CALCULATION OF SECOND AND SUBSEQUENT VARIABLEANNUITY INSTALLMENTS
The dollar amount of each monthly annuity installment,after the first such installment, payable under theBenefits To The Annuitant Provisions or under the Firstor Second Settlement Option, shall be equal to thenumber of annuity units multiplied by the value of anannuity unit for the calendar month in which theinstallment is payable. The Company guarantees that thedollar amount of such installments after the firstshall not be affected by variations in the actualmortality experience of payees from the mortalityexperience assumptions of the Progressive AnnuityMortality Table.
MISCELLANEOUS PROVISIONS
23. THE CONTRACT
This policy and the application therefor, a copy ofwhich is attached hereto and made a part hereof,constitute the entire contract between the parties. Allstatements made by the Annuitant or on his behalfshall, in the absence of fraud, be deemedrepresentations and not warranties, and no suchstatement shall be used in defense to a claim underthis policy unless it is contained in the applicationand a copy of the application is attached to thispolicy when issued.
24. INCONTESTABIL- ITY
This policy, excepting any provisions granting benefitin event of total and permanent disability, shall beincontestable after two years from its date of issue,except for nonpayment of premiums.
25. MISSTATEMENT OF AGE OR SEX
If any payee's age or sex has been misstated, anyamount payable by the Company at any time shall be suchas the premium would have provided at the correct ageor sex. For annuity payments subsequent to such acorrection of age or sex the dollar amount of annuitypayments so determined will be adjusted, on anequivalent basis, for any underpayments or overpaymentspreviously made.
26. SUICIDE
If the Annuitant shall commit suicide while sane orinsane within two years from the date of issue hereof,the liability of the Company under this policy shall belimited to the premiums actually paid hereon less anyindebtedness due to the Company.
27. FREQUENCY OF PAYMENTS
Payment of benefit to the Annuitant or Beneficiaryunder any provision hereof will be made monthly unlessquarterly, semi-annual or annual payments are requestedby the payee in writing. If at any time the payments toany payee are or become less than $25.00 each, theCompany shall have the right to change the frequency ofpayments to such intervals as will result in paymentsof at least $25.00.
28. CHANGE OF BENEFICIARY OR MODE OF PAYMENT OFPROCEEDS
While this policy is in force, if the right to changethe beneficiary has been reserved, the Annuitant,subject to the terms of any existing assignment, maychange the beneficiary, or may change the mode ofpayment of the proceeds of this policy to any mode ofpayment upon which the Annuitant and the Company mayagree, by filing at the Home Office of the Company awritten request therefor accompanied by this policy forendorsement. Such change, either in beneficiary or modeof payment of proceeds, shall take effect only uponendorsement of the same on this policy by the Company.During the lifetime of any irrevocable Beneficiary thewritten consent of such Beneficiary shall be necessaryto any revocation or change of beneficiary. If there bemore than one Beneficiary, whether revocably orirrevocably designated, the interest of any Beneficiarywho predeceases the Annuitant shall pass to thesurvivor or survivors unless otherwise directed by theAnnuitant and so endorsed by the Company on thispolicy. If no designated Beneficiary survives theAnnuitant and it is not otherwise provided, theproceeds of this policy shall be payable in one sum tothe executors, administrators or assigns of theAnnuitant.
29. MANNER OF PAYMENT
All amounts payable by the Company are payable at itsHome Office. In any settlement under the policy byreason of death, surrender, or otherwise, the Companymay require the return of the policy. Due proof of theAnnuitant's death or disability, or of theBeneficiary's death, must be submitted to theCompany at its Home Office in conformance with formsfurnished by it. Before making or continuing anyannuity payment the Company will require satisfactoryevidence as to the age of the person or persons duringwhose lifetime payments are to be made. Any suchpayment shall not be due until the evidence requiredshall have been received at the Home Office of theCompany.
30. PROOF OF SURVIVAL
The Company, prior to making any annuity payments underthe policy, may require evidence satisfactory to itthat the payee was alive at 12:00 o'clock noon,Standard Time, at the place where the payee resides, onthe due date of such payment, and in case of suchrequirement, any such payment shall not be due untilthe evidence required shall have been received at theHome Office of the Company.
31. CONTROL, ASSIGNMENTS, IETC.
In the absence of a special endorsement or agreementfiled with the Company creating an exception hereto,the Annuitant may, without the consent of any revocablebeneficiary, assign or surrender this policy, amend ormodify the same with the consent of the Company, andexercise, receive and enjoy every other right, benefitand privilege contained in this policy.
32. NOTICE OF ASSIGNMENT
No assignment of this policy shall be binding on theCompany until it is filed with the Company at its HomeOffice. The Company will assume no responsibility forthe validity or sufficiency of any assignment, and anyclaim thereunder shall be subject to proof of interestand the extent thereof.
33. MODIFICATION OF CONTRACT
Only the President, a Vice President, the Secretary oran Assistant Secretary of the Company has power tochange, modify or waive the provisions of this policy,and then only in writing. The Company shall not bebound by any promise or representation heretofore orhereafter made by or to any agent or person other thanas above enumerated.
34. CURRENCY
All amounts payable under this policy, either to or bythe Company, shall be payable in lawful currency of theUnited States of America. Rider Providing for Waiver ofPremium Benefit in Event of
TOTAL AND PERMANENT DISABILITY
Attached to and made a part of Policy No.: Specimen on the Life of John Doe
Upon receipt at the Home Office of the Company, in accordance with the conditions hereinafter stated, of written notice of claim of disability and proof that the Annuitant has become totally and permanently disabled by bodily injury or disease originating after the effective date of this rider, and as defined herein, the Company will waive the payment of all premiums falling due under the policy during the continuance of such total and permanent disability until the Maturity Date stated on the face of the policy or until age 65 for males or age 60 for females, whichever first occurs. The Waiver of Premium shall begin with the premium the due date of which next succeeds the date of commencement of such disability; provided, however, that no premium shall be waived, the due date of which is more than six months prior to the date of receipt at the Home Office of the Company of written notice and proof of claim hereunder. The amount payable under any settlement will not be reduced by any premiums waived under this rider and cash values will be the same as if the premiums so waived had been paid in cash.
CONSIDERATION--This rider is issued in consideration of the payment of a premium of $39.60 included in the premium stated on the face of the policy and payable at the times and in the manner there specified. Any premium on the policy falling due on or after the termination of this rider shall automatically be reduced by the premium for this rider.
DEFINITION OF TOTAL AND PERMANENT DISABILITY--Disability shall be deemed to be total when the Annuitant is prevented thereby from engaging in any occupation or from performing any work for compensation or profit. Such total disability shall be presumed to be permanent (but only for the purpose of determining the commencement of liability hereunder) when it is present and has existed continuously as above set forth for not less than six consecutive months. Without prejudice to any other cause of disability, the entire and irrecoverable loss of the sight of both eyes or the total and permanent loss by removal or disease of the use of both hands or both feet or of one hand and one foot shall be considered as total and permanent disability within the meaning hereof.
NOTICE AND PROOF OF CLAIM--Written notice of claim and satisfactory proof of total and permanent disability of the Annuitant must be presented to the Company at its Home Office (a) while the Annuitant is living and during the continuance of total and permanent disability and (b) before the policy anniversary on which the age of the Annuitant at nearest birthday is sixty; provided, however, that failure to give such notice and proof within such times shall not invalidate any such claim if it shall be shown that it was not reasonably possible to give such notice and proof within such times and that notice and proof were given as soon as was reasonably possible. In case premiums on the said policy have been discontinued before receipt at the Home Office of written notice and proof of claim hereunder, disability benefits shall be allowed only if such notice and proof are received within one year of the due date of the first premium discontinued, and if the total disability for which claim is made commenced prior to the due date of such premium, or subsequent to the due date of such first premium discontinued but within the grace period allowed by said policy for payment of such premium. In either event, no premium shall be waived the due date of which is more than six months prior to receipt of such notice and proof and the Annuitant shall be liable for an amount equal to the current value of such number of accumulated units as would have been credited to the policy if premium payments had not been discontinued before such six months period. As a condition precedent to approval of claim or to continuance thereof, the Company shall have the right and opportunity to have one or more physicians designated by it examine the Annuitant when and so often as it may reasonably require.
PROOF OF CONTINUANCE OF DISABILITY AND RECOVERY FROM DISABILITY--Even though proof of disability has been accepted by the Company as satisfactory, the Annuitant shall, whenever required by the Company, furnish due proof of the continuance of such disability, but after such disability shall have continued for two full years the Company will not demand such proof more often than once in each subsequent year. If the Annuitant fails to furnish such proof, or on request fails to submit to a physical examination by physicians of the Company's designation or so far recovers as to be able to engage in any occupation or to perform any work for compensation or profit, then all premiums thereafter falling due must be paid as originally provided in the policy. If any such premiums are past due they shall be payable in accordance with the reinstatement provision of the policy. The Annuitant agrees to give immediate notice to the Company upon recovery from such disability. Failure to give such notice shall cancel the foregoing disability benefits.
EXCLUSIONS--The disability benefits herein provided shall not be granted if the disability results (1) from intentional self-inflicted injury, (2) from any act attributable to war, declared or undeclared, or (3) from military, naval or air service for any country at war, declared or undeclared.
TERMINATION--This disability rider shall terminate (a) on the policy anniversary on which the age of the Annuitant at nearest birthday is sixty or (b) when any premium on this rider or on the policy to which it is attached is not paid when due or within the days of grace for payment of such premium; or it may be terminated on the due date of any premium on the policy by written request of the Annuitant accompanied by the policy for endorsement.
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY OF AMERICA
Incorporated
Specimen ROBERT A. CRICHTONCountersigned President
RegistrarEffective Date November 1, 1956 VARIABLE ANNUITY LIFE INSURANCE COMPANY WASHINGTON, D.C. "DEFERRED VARIABLE ANNUITY POLICY" NO. Specimen ANNUITANT: John Doe TOTAL PREMIUM: $1,000.00 PREMIUM DUE DATES: 1st of November each year MATURITY DATE: November 1, 1986
Variable Life Annuity Benefits Payable Commencing at a Time between Age 50 and 70, Selected by the Annuitant. Life Insurance Benefits if provided in Schedule of Insurance. Benefits for Disability if provided by Rider. Premiums Payable Until Maturity Date, or by a Single Premium. ANNUITY PAYMENTS PROVIDED BY THIS POLICY ARE VARIABLE AND ARE NOT GUARANTEED AS TO FIXED DOLLAR AMOUNT