LSW Horizon, Foundation and IncomeBuilder FIXED INTEREST UNIVERSAL LIFE INSURANCE Table of Contents Description... 2 Sales Scenarios Universal Life Who Are Your Clients?... 3 Foundation... 3 IncomeBuilder... 3 Horizon... 3 Products at a Glance... 4 What is Universal Life?... 5 Features and Benefits... 6 Product Specifications Policy Protection Period... 7 Surrender Chargess... 7 Policy Charges... 7 Banding... 7 Premiums... 7 Insurance Premium Test... 8 Death Benefit Options... 8 Change in Death Benefit Option... 8 Changes in Face Amount... 9 Loans... 9 Withdrawals... 10 1035 Exchanges... 10 Product Guide Accelerated Benefits Riders (ABR) ABR for Terminal Illness... 11 ABR for Chronic Illness... 12 ABR for Critical Illness and Critical Injury... 13 Accidental Death Benefit Rider (ADB)... 14 Additional Protection Benefit Rider (APB)... 14 Balance Sheet Benefit Rider (BSB)... 14 Children s Term Rider... 14 Death Benefit Protection Rider... 15 Disability Income Rider... 15 Guaranteed Insurability Rider... 16 No-Lapse Guarantee Rider... 16 Overloan Protection Rider... 17 Other Insured Rider... 17 Qualified Plan Exchange Privilege Rider (QPEP)... 18 Unemployment Rider... 18 Waiver of Specified Premium Rider... 18 Waiver of Target Premium... 19 Products issued by Life Insurance Company of the Southwest National Life Group is a trade name representing various affiliates, which offer a variety of financial service products. Centralized Mailing Address: One National Life Drive, Montpelier, VT 05604 800-906-3310 www.nationallife.com Home Office: Addison, TX TC89036(0216)P For Agent Use Only - Not For Use With the Public Cat No 62683(0716)
LSW s Fixed Universal Product Suite: Horizon, Foundation and IncomeBuilder are flexible premium, flexible death benefit Universal Life policies designed to help meet changing customer needs. Whether your customer desires low minimum premiums in a permanent life policy, taxdeferred cash accumulation or a variety of living benefit riders, we have a great solution to offer them. LSW s Fixed UL products are designed to help meet the needs of your clients changing lives with such features as: Premium and Death Benefit flexibility No-additional-cost Accelerated Benefit Riders Other Insured Rider Waiver of Specified/Target Premium Rider Death Benefit Protection Rider available on IncomeBuilder High levels of guarantees Optional Riders for family protection Death benefit blending options for lower premium outlay available with Horizon Business planning with the Balance Sheet Benefit Rider on Horizon Riders are optional, may be subject to underwriting, exclusions and/or limitations and may not be available in all states. The use of some riders may reduce or eliminate other policy or rider benefits. page 2
Sales Scenarios Universal Life Who Are Your Clients? Consumers needing life insurance who are looking for a policy with the potential for high tax-deferred cash value accumulation or a high death benefit for comparatively low premium for permanent insurance. Specifically, consumers who want: premium and death benefit flexibility; a lower premium outlay for their death benefit protection; to accumulate tax-deferred cash value to access at a later date; guarantees in the form of interest rates. Foundation Offers the lowest initial premium for permanent protection combined with flexibility and guarantees. Foundation has no-fluid underwriting available for face amount of $250,000 or less and ages 65 and under. Marketing Position - Mortgage Protection Foundation is an alternative to term insurance for mortgage protection that offers the option to provide permanent benefits and the potential for cash value growth. Foundation provides high death benefit protection with a comparatively low premium outlay for permanent insurance. It also offers premium and death benefit flexibility so as your clients needs change, their policy can too. Foundation UL is ideal for families looking for mortgage protection in the event they should die prematurely. Based on current illustration assumptions, paying the minimum premium will provide around 20 years of coverage. IncomeBuilder Focuses on cash value accumulation to help clients meet future financial goals. Also offers strong death benefit guarantees with optional Death Benefit Protection Rider. Marketing Position - Tax-Free Retirement Strategy IncomeBuilder is ideal for clients in the emerging affluent market who have a strong focus on guarantees and cash value accumulation, and who are able to adequately fund a policy to work with the Tax-Free Retirement 1 strategy. Between its guarantees and cash value accumulation, IncomeBuilder offers clients the opportunity to use their life insurance not just as death benefit protection, but also the potential to supplement their retirement on a tax-free basis! IncomeBuilder also works in business planning applications such as qualified plans, key person insurance, and funding buy-sell agreements. Horizon Permanent life insurance protection, while maximizing cash value for retirement, college, or other long term needs. In addition, maintain lifetime access to Living Benefits, Horizon is ideal for individuals who are looking for death benefit protection with the potential to build cash value accumulation. This product should be used in situations where the client is looking for permanent insurance and is planning to heavily fund the policy. Life Insurance is also the preferred choice to fund buy-sell agreements, executive bonus plans and non-qualified deferred compensation arrangements. Additionally, qualified plans offer a great opportunity to use tax deductible dollars to pay life insurance premiums. By providing premium flexibility, cash value accumulation and optional benefits to help protect key employees and their families, Horizon is well-suited for business planning situations. 1 The use of cash value life insurance to provide a tax-free resource for retirement assumes that there is first a need for the death benefit protection. Policy loans and withdrawals reduce the policy s cash value and death benefit and may result in a taxable event. Except in the case of a Modified Endownment Contract (MEC), withdrawals up to the basis paid into the contract and loans thereafter will not create an immediate taxable event, but substantial tax ramifications could result upon contract lapse or surrender. For MECs, policy loans and withdrawals are considered withdrawals and treated as taxable income to the extent there is gain in the policy and may also be subject to a 10% penalty for early withdrawals. Surrender charges may reduce the policy s cash value in early years. page 3
Products at a Glance LSW Foundation Horizon IncomeBuilder Riders Available Product Focus Marketing Strategy Lowest initial premium permanent protection with Traditional Universal Life flexibility Low cost permanent coverage alternative to Term and exceptional mortgage protection Cash value accumulation and flexibility, ideal for business planning needs. Permanent life insurance protection while maximizing cash value. Maintain lifetime access to Living Benefits. Issue ages 0 85 (age last birthday) 0 85 (age nearest birthday) 0 85 (age nearest birthday) Minimum Face Amount $25,000 $100,000 $100,000 Minimum Premium $25.00 / month $25.00 / month $25.00 / month Rate Classes - Preferred Non-Tobacco (issue ages 18-65) Face amounts greater than $250,000 or age greater than 65. - Verified Standard Non-Tobacco (issue ages 0-85) - Express Standard Non-Tobacco (issue ages 0-85) - Preferred Tobacco (issue ages 18-65) Face amounts greater than $250,000 or age greater than 65. - Standard Tobacco (issue ages 15-85) Note: Verified Standard Non-Tobacco will be used for non-rated issue ages 0-14 Substandard Pension Initial Face Amount: - Table ratings and flat extras are available with Standard Non-Tobacco Standard Tobacco classes - Temporary flat extras are available with the Verified Standard Non-Tobacco, Express Standard Non-Tobacco and Standard Tobacco Classes. - Elite Preferred Non-Tobacco (issue ages 20 75) - Preferred Non-Tobacco (issue ages 20 85) - Verified Standard Non-Tobacco (issue ages 0 85) - Preferred Tobacco (issue ages 20 85) - Standard Tobacco (issue ages 20 85) The Verified Standard Non-Tobacco Class will be used for insureds ages 0 19. Tobacco users will have a 200% rating applied. - Table ratings and flat extras are available with Standard Non-Tobacco Standard Tobacco classes - Temporary flat extras are available with any rate class. Not Available - Standard Rate Classes $5,000 - Preferred Rate Classes $25,000 - Pension Increase in Face Amount $2,000 Washington State Minimum face amount is $25,000 in all cases Pension Underwriting Not Available - Automatic Issue - Guaranteed Issue - Simplified Issue Interest Rate Crediting Method Minimum Guaranteed Interest Rate Surrender Schedule Policy Loans Withdrawals 1035 Exchanges with Loans Expense Charges Efficient cash value accumulation with strong death benefit guarantees Tax-free retirement, lower premium outlay for minimal cash or endow at age 100 for survivor protection - Elite Non-Tobacco (issue ages 20 75) - Preferred Non-Tobacco (issue ages 20 85) - Standard Non-Tobacco (issue ages 0 85) - Preferred Tobacco (issue ages 20 85) - Standard Tobacco (issue ages 20 85) The Standard Non-Tobacco Class will be used for insureds ages 0 19. Known Tobacco users between ages 0-19 will have a 200% rating applied to the Standard Non-Tobacco class. - Table ratings and flat extras are available with Standard Non-Tobacco Standard Tobacco classes - Temporary flat extras are available with any rate class. - Standard Rate Classes $5,000 - Preferred Rate Classes $100,000 - Pension Increase in Face Amount $2,000 (standard) $5,000 (preferred) Washington State Minimum face amount is $25,000 in all cases - Automatic Issue - Guaranteed Issue - Simplified Issue Portfolio Portfolio Portfolio 4.00% 4.00% 3.00% Level first five years, grades down to zero at the end of year 15 Wash loans available after five policy years with evidence of purchasing or refinancing a home (terms vary by state). Available after the first policy year. A $25 withdrawal fee will apply 10 year declining surrender charge Wash loans available in all policy years on a current basis. Available after the first policy year. A $25 withdrawal fee will apply Not Available Available loan balances can account for up to 50% of the gross transferred amount. - Policy fee: $6.15 per month - Premium load: 7.5% of premium Monthly expense charge is based on issue age, gender, rate class, and face amount Policy fee: $5 per month Premium load: 6% of premium Banding Not Available Determined at issue based on the total face amount including APB. Only monthly expense charges and MMP rates will vary by band. Band 1: Min. face amount up to $249,999 Band 2: $250,000-$999,999 Band 3: $1,000,000 and up 15 year declining surrender charge Wash loans available beginning in year 6 on a current basis. Available after the first policy year. $25.00 withdrawal fee will apply Available loan balances can account for up to 50% of the gross transferred amount Monthly expense charge is based on issue age, gender, rate class, and face amount - Policy fee: $5 per month - Premium load: 6% of premium Band 1: Min. face amount up to $249,999 Band 2: $250,000-$999,999 Band 3: $1,000,000 and up (where approved) - Accelerated Benefits Riders for Terminal, Chronic, Critical Illness and Critical Injury - Accidental Death Benefit Rider - Additional Protection Benefit Rider (Horizon only) - Balance Sheet Benefit Rider (Horizon only) - Children s Term Rider - Death Benefit Protection Rider (IncomeBuilder only) - Disability Income Rider (2-year and 5-year) - Guaranteed Insurability Rider - No-Lapse Guarantee Rider (Horizon only) - Other Insured Rider - Overloan Protection Rider (IncomeBuilder & Horizon only) - Qualified Plan Exchange Privilege Rider (Horizon only) - Unemployment Rider - Waiver of Specified Premium Rider (Horizon only) - Waiver of Target Premium Rider (Foundation & IncomeBuilder only) Not all riders applicable in qualified pension plans. page 4
What is Universal Life? Consider the following features shared by all Universal Life policies Flexibility A policyholder can decide how much life insurance he or she needs (subject to certain requirements and limitations). The death benefit and premium payment can be adjusted to accommodate changing needs. Security Beneficiaries are protected against possible financial hardship in the event of the insured s death. Tax-deferred account value growth The policy s account value earns an interest crediting rate which accumulates income-tax deferred. Life Changes. Protect It. Tax-free death benefit Under current tax laws, life insurance proceeds are generally paid income-tax free to the beneficiary. Tax-free distributions Under current tax laws, life insurance cash values accessed via loans are generally paid income-tax free, providing individuals who own permanent life insurance a potential source for tax-free income in retirement. 1 Interest Crediting Interest is credited based on the performance of investments made by the insurance company (usually in high quality bonds and mortgages). For Foundation and Horizon, the minimum guaranteed interest rate is 4%. For IncomeBuilder, the minimum guaranteed interest rate is 3%. The interest rate for Horizon, Foundation and IncomeBuilder is credited on a portfolio basis. page 5
Features and Benefits Features Flexibility LSW s fixed UL products offer premium flexibility, allowing clients the choice to pay more, pay less, skip or stop premium payments. They also offer the flexibility of either a level death benefit or increasing death benefit. Benefits As your client s needs change, their policies provide the flexibility to help meet their ever changing insurance needs, all in a single contract. Living Benefits: 2 Overloan Protection Rider: 3 Tax-Free Distributions: Waiver of Specified/Target Premium Rider: Guarantees: 6 LSW s fixed UL products also offer a wide range of riders to customize your client s insurance needs including a variety of living benefits. This rider helps prevent your client s policy from lapsing in situations where loan balances threaten the contract s ability to stay in-force. Available on IncomeBuilder only. Foundation and IncomeBuilder offer a death benefit which is paid income tax-free. Waiver of Specified Premium Rider is available on IncomeBuilder only. Allows your clients to determine how much of their premium will be waived in the event they become disabled. Waiver of Target Premium is available on Foundation only. The guaranteed minimum annual interest rate for IncomeBuilder is 3%. The guaranteed minimum annual interest rate for Foundation is 4%. We call it Life Insurance You Don t Have to Die to Use. Your clients can access their policy s benefits while they are still living. Benefits include coverage in case of: Terminal Illness Chronic Illness Critical Illness & Critical Injury Disability Policy loans 3 from IncomeBuilder are received incometax free. If the policy lapses, with outstanding policy loans, there could be taxable income to the policyholder. In the event loan balances threaten the contract s ability to stay in-force, and if the terms of the rider are met, the Overloan Protection Rider will restructure the policy so that it is guaranteed not to lapse. Life insurance values grow tax-deferred. Plus, under current tax laws, these cash values can be accessed generally tax-free, using policy loans and withdrawals. 4 These products provide your clients a potential source of tax-free income in retirement, especially with IncomeBuilder which has a strong focus on cash value accumulation. With tax-deferred accumulation your clients can save for retirement. The Waiver of Specified Premium Rider can ensure their premium is paid in the event disability occurs. Your client chooses the level of premium to be paid upon disability. 5 Clients can be assured that, regardless of where interest rates move, their policy values will continue to earn an attractive interest rate. Death Benefit 7 Protection Rider Additional Protection Benefit Rider (APB) Balance Sheet Benefit Rider The optional Death Benefit Protection Rider, available on IncomeBuilder only, offers additional death benefit security by ensuring the policy will not lapse during the 20 year death benefit protection period. 7 APB may increase the total death benefit and/ or cash value without significantly increasing the cost. Available on Horizon only. This rider provides early duration enhanced policy surrender values which increase the policy s collateral value for business accounting. Available on Horizon only. Your clients can be assured that their policy will not lapse, should they encounter a period in their life where cash flow is tight, provided that the accumulated premiums paid exceed the accumulated required premiums. The APB rider provides additional permanent coverage on the primary insured at a cost that is generally lower than the cost of the base coverage. This rider was designed for use in business planning cases. When funding an employee benefit program, this rider may help where there is a need for higher cash surrender value in the early policy years and can also be used in a premium financing situation. (Premium financing is offered and administered independently of LSW.) 2 Policy loans and withdrawals and the use of living benefits riders reduce the policy s cash value and death benefit and may result in a taxable event. Surrender charges may reduce policy values in early years. 3 Limitations apply to exercising the Overloan Protection Rider, including that the policy be in force at least 15 years and the insured having attained the age of 75. Exercising the rider results in a paid-up policy. There is no cost for this optional rider, however, there is a fee when the rider is exercised. 4 Policy loans and withdrawals reduce the policy s cash value and death benefit and may result in a taxable event. Except in the case of a Modified Endowment Contract (MEC), withdrawals up to the basis paid into the contract and loans thereafter will not create an immediate taxable event, but substantial tax ramifications could result upon contract lapse or surrender. For MECs, contract loans and withdrawals are considered taxable income. Surrender charges may reduce the policy s cash value in early years. 5 Cannot exceed the planned periodic premium at issue. 6 Guarantees are dependent upon the claims-paying ability of the issuing company. 7 Significant limitations apply - please see the rider information in this guide for more details. page 6
Product Specifications Policy Protection Period The Policy Protection Period helps protect the policy against lapse during the first 10 policy years for IncomeBuilder, the first 15 years for Foundation and 5 years for Horizon. During this period, the policy will not enter a grace period, even if the cash surrender value is not sufficient to cover the monthly deductions, as long as: the sum of premiums paid, less all withdrawals made and less any policy debt, is greater than or equal to the total minimum monthly premiums in effect since the date of issue, and the accumulated value less any policy debt is sufficient to cover the monthly deductions. The Policy Protection Period does not restart after an increase in face amount. Surrender Charges Surrender charges apply during the first 15 years of the policy for both Foundation and IncomeBuilder and 10 years for Horizon. The surrender charge will be based on issue age, gender, rate class, policy duration and face amount. A face amount increase will have its own surrender charges associated with it. Policy Charges Monthly Expense Charge: based on issue age, gender, rate class and face amount. Policy fee: $5.00 per month for IncomeBuilder and Horizon $6.15 per month for Foundation Banding Horizon and IncomeBuilder Only Banding is determined at issue based on the total face amount. Only monthly expense charges and Minimum Monthly Premium rates will vary by band. Band 1: Min. face amount up to $249,999 Band 2: $250,000-$999,999 Band 3: $1,000,000 and up Premiums Foundation, IncomeBuilder and Horizon have minimum and commissionable target premiums. A premium equal to one minimum monthly premium for each monthly policy date between the effective date and the issue date is due on the date of issue. The Commissionable Target Premium (CTP) is the maximum premium on which the higher compensation rate will apply. The minimum monthly and commissionable target premium will be based on face amount, issue age, rate class and gender. Payment Mode: Annual, semi-annual, quarterly or check-o-matic. The minimum billed premium amount is $25.00/month. Unscheduled premiums may be paid into the policy at any time, up to a maximum amount permitted by the Home Office. The target premium for the Unemployment Rider and the Waiver of Target Premium is defined as the policyholder s planned periodic premium, up to the policy s CTP. Premium load: 6% of premium for IncomeBuilder and Horizon 7.5% of premium for Foundation page 7
Insurance Premium Test Under Section 7702 of the Internal Revenue Code, a contract will generally be treated as life insurance for federal income tax purposes if, at all times, it meets either the: Guideline Premium Test (GPT) -otherwise referred to as the DEFRA Limit or Cash Value Accumulation Test (CVAT). Both tests require a set of corridor factors which are used to define the minimum amount of death benefit above the contract s accumulated value which must be maintained. The GPT also places limits on the amount of premium that can be paid into a given contract. These limitations can have an effect on your ability to pay premiums and/or make changes to your policy such as taking a withdrawal or changing your death benefit option. The CVAT places no limits on the amount of premium that can be paid into a given contract, but the CVAT corridor factors are generally higher than those required under the GPT. The policyholder may choose between using the GPT or the CVAT to demonstrate compliance with IRC Section 7702. The choice is made by the policyholder at issue and is irrevocable. CVAT is only available with Horizon and IncomeBuilder. Death Benefit Options The policyholder may elect an Option A (level) or Option B (increasing) death benefit. Option A The death benefit is equal to the greater of 1. the face amount, or 2. the accumulated value multiplied by the applicable corridor factor Option B The death benefit is equal to the greater of 1. the face amount plus the accumulated value; or 2. the accumulated value multiplied by the applicable corridor factor Change in Death Benefit Option The policy s death benefit option can be changed from Option A to B, or B to A, once each policy year after the first policy anniversary. If a change would cause the policy to no longer qualify as life insurance for federal income tax purposes, or if the resulting face amount is less than the minimum face amount, the change will not be allowed. Changing from Option A (level) to Option B (increasing): The face amount of the policy will be reduced by the accumulated value just prior to the effective date of the change. Change from Option B to A: The face amount will increase by an amount equal to the accumulated value just prior to the effective date of the change. In both cases listed above, the death benefit is the same before and after the change. Note: increases and decreases in face amounts for pension owned policies can be done in the first year of the policy. page 8
Changes in Face Amount Increase in Face Amount: After the first policy anniversary the policyholder may apply for an increase in coverage subject to the following terms: Satisfactory proof of insurability. The requested increase satisfies the minimum face amount requirements. The change will be effective on the monthly date on or following the approval of the application. Each increase will have its own effective date, set of surrender charges, and monthly expense charge. Decreases in Face Amount: After the first policy anniversary the policyholder may request a decrease in face amount in coverage subject to the following terms: The decrease becomes effective on the monthly policy date or the day following our receipt of the request at the Home Office. Decreases cannot result in a face amount less than the minimum face amount. Decreases will not be permitted if the decrease causes the policy to no longer qualify as life insurance for federal income tax purposes. The total face amount of the policy following the reduction may be no less than 75% of the largest total face amount in force at any time in the twelve months prior to the request. Decreases do not affect the level of surrender charges on the monthly expense charge. Each change in coverage will cause the Commissionable Target Premium (CTP) and Minimum Monthly Premium (MMP) to be adjusted accordingly. Loans 4 Loans are available at any time after the first policy year. For pension owned policies, loans are available in the first policy year. The policy will serve as the sole collateral for the loan. The amount available for loan on any day will be the surrender value, less three times the monthly deductions due on the last monthly policy date. For IncomeBuilder, the interest rate charged on the loan will be a variable rate that is based on the Moody s Corporate Bond Yield Average - Monthly Corporates. Loaned values are segregated in a Loan Collateral Fund, and credited with the Variable Loan Rate (VLR) less an interest spread. Currently, preferred loans are available beginning policy year six. For Foundation, the interest rate charged on the loan will be a variable rate that is based on Moody s Corporate Bond Yield Average -Monthly Corporates, subject to a minimum rate of 5%. Loaned values are segregated in a Loan Collateral Fund and credited with 4%. For Foundation, Preferred Loans are available beginning on the fifth policy year with verification of refinancing or purchasing a home (terms vary by state). The interest rate charged on preferred loans is 4%. Interest credited on the loan collateral is 4%. For Horizon, the interest rate charged on the loan will be a variable rate that is based on the Moody s Corporate Bond Yield Average - Monthly Corporates, subject to a minimum rate of 5%. Loaned values are segregated in a Loan Collateral Fund, and credited with the Variable Loan Rate (VLR) less an interest spread. The current interest spread is zero, creating preferred loans in all policy years on Horizon. All or any loan amount may be repaid at any time prior to the death of the insured or the surrender of the policy. The exception is if the policy is in the grace period, the loan repayment would be considered a premium payment to keep the policy in force unless the policyholder specifies it as a loan repayment. page 9
The Overloan Protection Rider, available on IncomeBuilder and Horizon, guarantees that the policy will not lapse in situations where loan balances threaten the policies ability to stay in force. 1 To exercise the Overloan Protection Rider, the policy must be in force at least 15 years and the insured must be at least age 75. 1035 Exchanges The effective date of 1035 exchanges will be the date the funds are received into the home office. 1035 Exchanges with loans will be permitted for IncomeBuilder and Horizon only, as long as the loan transferred does not exceed 50% of the total policy value transferred. Withdrawals 4 At any time after the first policy year, or during the first policy year for pension owned policies, the policyholder may make a withdrawal of the policy s cash surrender value subject to the following terms: The amount of withdrawal may not exceed the cash surrender value minus three monthly deductions due on the last monthly policy date. The accumulated value will be reduced by the amount of the withdrawal. The face amount will be reduced by an amount equal to the withdrawal, for Option A (level) policies. Withdrawals will not be permitted if the decrease in face amount causes the policy to no longer qualify as life insurance for federal income tax purposes. The Company will charge a $25 fee for each withdrawal made. page 10
Accelerated Benefits Riders (ABR) Refer to the Accelerated Benefits Riders agent guide for more details. ABR for Terminal Illness Accelerates death benefit during lifetime for terminal illness. Overview Riders are supplemental benefits that can be added to a life insurance policy and are not suitable unless the client has a need for life insurance. ABR is a noadditional premium rider that allows for the death benefit, on a discounted basis, to be accelerated during lifetime, for terminal illness. A unique feature about ABR is that benefits do not have to be used to defray actual expenses associated with the terminal illness. They could be used for such things as making structural changes to a home to accommodate the illness, compensating a non-licensed care provider, etc. Terminal Illness Definition: Terminal Illness advances payment, under certain circumstances and on a discounted basis, payment of all or part of the policy s death benefit prior to the death of the insured. The accelerated payment can be made if the Insured is suffering from a terminal illness that will result in death within 24 months (12 months in CT, PA and VT). ABR Terminal Benefit: The amount of death benefit available for ABR payout is based on a discount factor of the death benefit amount. The amount accelerated will reduce the death benefit, the cash value and the loan value. A summary of the projected discounted death benefit amount can be illustrated through the NLGroup Illustration system. For Terminal Illness, Life Insurance Company of the Southwest will accelerate, income-tax free, the discounted death benefit, not to exceed a lifetime maximum of $1,500,000 per insured. There is no annual limit and the benefit can be received as a lump sum if desired. ABR Terminal does not have a waiting period. 8 Limits may vary by state, please refer to your policy form for details and limitations that may apply in your state. 8 Payment of Accelerated Benefits will reduce the Cash Value and Death Benefit otherwise payable under the policy. Receipt of Accelerated Benefits may be a taxable event and may affect eligibility for public assistance programs. Policyholders should consult their personal tax advisor to determine the tax status of any benefits paid under this rider and with social service agencies concerning how receipt of such a payment will affect eligibility for public assistance. page 11
Accelerated Benefits Riders (ABR) Refer to the Accelerated Benefits Riders agent guide for more details. ABR for Chronic Illness Accelerates death benefit during lifetime for chronic illness. Overview Riders are supplemental benefits that can be added to a life insurance policy and are not suitable unless the client has a need for life insurance. ABR is a no-additional premium rider that allows for the death benefit, on a discounted basis, to be accelerated during lifetime, for chronic illness. A unique feature about ABR is that benefits do not have to be used to defray actual expenses associated with the chronic illness. They could be used for such things as making structural changes to a home to accommodate the illness, compensating a non-licensed care provider, etc. ABR proceeds in the state of MA can only be used to pay for expenses incurred for Qualified Long-Term Care Services. 9 Note: Rider availability and waiting period can vary by state, so make sure to check your policy form. Chronic Illness Definition: A chronically ill individual is one who has been certified, within the past 12 months, by a licensed health care practitioner as being unable to perform, without substantial assistance, at least 2 out of 6 activities of daily living - ADLs - for a period of at least 90 days due to a loss of functional capacity. The six activities are defined as eating, toileting, transferring, bathing, dressing and continence. Cognitive impairment may also qualify. ABR Chronic Benefit: The amount of benefit available for ABR payout is based on a discount factor of the death benefit amount. The amount accelerated will reduce the death benefit, the cash value and the loan value. A summary of the projected discounted death benefit amount can be illustrated through the NLGroup illustration system. Generally, once the policy has been in force for 2 years, Life Insurance Company of the Southwest will accelerate 2% of the net death benefit each month or 24% annually, not to exceed the annual limit or lifetime maximum of $1,500,000 per insured. 8 9 Qualified Long-Term Care Services: The necessary diagnostic, preventative, therapeutic, curing, treating, mitigating and rehabilitative services, and maintenance or personal care services that are required by a chronically ill individual and are provided pursuant to a plan of care prescribed by a licensed health care practitioner. Limits vary by state, please refer to your policy form for details and limitations that may apply in your state. page 12
Accelerated Benefits Riders (ABR) Refer to the Accelerated Benefits Riders agent guide for more details. ABR for Critical Illness and Critical Injury Accelerates death benefit during lifetime for critical illness or critical injury. Overview Riders are supplemental benefits that can be added to a life insurance policy and are not suitable unless the client has a need for life insurance. ABR is a no additional premium rider that allows for the death benefit, under certain circumstances and on a discounted basis, to be accelerated during lifetime, for critical illness or critical injury. A unique feature about ABR is that benefits do not have to be used for actual expenses associated with the triggering illness or injury. They could be used for such things as making structural changes to a home to accommodate the medical condition or illness, compensating a non-licensed care provider, etc. Critical Illness Definition: The death benefit can be accelerated when an insured is diagnosed with a triggering illness. Triggering illnesses are: ALS (Lou Gehrig s disease) Heart Attack Aorta Graft Surgery Heart Valve Replacement Aplastic Anemia Major Organ Transplant Blindness Motor Neuron Disease Cancer Stroke Cystic Fibrosis Sudden Cardiac Arrest End Stage Renal Failure Critical Injury Definition The death benefit can be accelerated when an insured is diagnosed with a triggering injury. Triggering injuries are: Coma Severe Burns Paralysis Traumatic Brain Injury ABR Critical Benefit: The amount of benefit available for ABR payout is based on a discount factor of the death benefit amount. The amount accelerated will reduce the death benefit, the cash value and the loan value. A summary of the projected discounted death benefit amount can be illustrated through the NLGroup illustration system. The critically ill or critically injured client can request a full acceleration or partial acceleration of the policy s death benefit in the form of a lump sum not to exceed the lifetime benefit maximum of $1,000,000 per insured. There is no annual limit. The level of discounting applied to the death benefit varies depending on the insured s age and the severity of the critical illness or critical injury. LSW - Policy must be in force for 30 days. Note: Waiting period and Rider availability can vary by state. Make sure to check your policy form Age Limit: In California, the Critical Injury rider is referred to as a specified disease rider and may only be sold to persons between issue ages (attained age) 0-64. ABR Critical is not available on Annual Renewable Term. 10 Covered Critical Illness in the state of Massachusetts includes: End stage renal disease; Coronary artery disease resulting in acute infarction vascular or requiring surgery; Major organ transplant; Permanent neurological deficit resulting from cerebral vascular accident; Diagnosis of an invasive malignancy characterized by the uncontrolled growth and spread of malignant cells and the invasion of tissue. Cancer does not include: Stage A Prostate Cancer: Any skin cancer except invasive malignant melanoma into the dermis or deeper; Premalignant lesions, benign tumors, or polyps; and Carcinoma in-situ. 11 Upon diagnosis page 13
Accidental Death Benefit Rider (ADB) The ADB pays an additional death benefit if the insured s death results from an accident. It is not available on insureds rated higher than 200% or a flat rate of more than $5 per thousand for 2 or more years. Not available with certain hazardous occupations. Issue ages 0 60. ADB is available to the Primary Insured as well as the Primary Other Insured (see the Other Insured Rider description). Rider stays in force until the policy anniversary following the insured s 70th birthday, as long as the insured s life insurance coverage and the base policy remain in force. Minimum rider amount is $10,000. Maximum rider amount is the lesser of $250,000 or the insured s life insurance face amount. Premiums are a level amount per thousand, based on issue age. Additional Protection Benefit Rider (APB) Available on Horizon Only The APB Rider is a non-commissionable rider which provides additional permanent coverage on the primary insured. The maximum ratio of APB face amount to base face amount for a single policy will be 9 to 1. The APB rider is available for all issue ages and rate classifications. The minimum APB face amount is $25,000. For a policy with APB, the maximum Death Benefit eligible for acceleration through use of the Accelerated Benefits Rider (ABR) is equal to the Policy Death Benefit minus 50% of the APB face amount at the time of initial acceleration, subject to maximum benefit amounts. Policies that utilize the APB rider will have slightly lower guaranteed values than policies utilizing all base coverage. Balance Sheet Benefit Rider (BSB) Available on Horizon Only The Balance Sheet Benefit Rider eliminates all surrender charges on the units of insurance to which it applies. There will be a monthly charge, based on issue age, sex, and rate class per unit of coverage for the rider. Commissions on units of insurance with the BSB rider will be paid using a different schedule which levelizes the compensation. Children s Term Rider (CTR) The Children s Term Rider provides term life insurance on all of the insured s children until they reach age 23. Each child is covered for the same selected benefit amount. Children born or adopted after issue (after they reach the age of 15 days), and dependent stepchildren living in the insured s home will be covered as well. The children s coverage is convertible without underwriting at any time while the rider is in force for an individual whole life or universal life policy with the same face amount. The children s coverage is convertible for double the rider face amount when the child reaches age 23 or marries, or at the death of the primary insured. Issue ages 15 days 16 years. Rider stays in force until the policy anniversary following the last covered child s 23rd birthday, as long as the base policy remains in-force. Minimum rider amount is $5,000. Maximum rider amount is $25,000. Premiums are a level amount per $1,000 regardless of the number of children covered. page 14
Death Benefit Protection Rider (DBPR) Available on IncomeBuilder only The short-term Death Benefit Protection Rider (DBPR) ensures that during the Death Benefit Protection Period, the policy will not lapse even if the account value is less than or equal to zero, provided that the accumulation with interest of the premiums paid by the policy holder less withdrawals accumulated with interest and less policy debt equals or exceeds the accumulation with interest of Monthly Guaranteed Premiums (MGP). However, this level of funding will not necessarily provide for the build-up of significant accumulated value in the policy. The interest rate is 5% (monthly equivalent rate is 0.0040741). Compliance with the DBPR requirements is made on each Monthly Policy Date during the Death Benefit Protection Period. If on any Monthly Policy Date the minimum premium requirement is not met, notification will be sent to the policy holder that the rider will be cancelled if a specified premium is not paid within 61 days from the date we mail the notice. Once the rider is lapsed, it cannot be reinstated. Every IncomeBuilder policy issued, except if the policy is issued under the Guideline Premium Test definition of life insurance and the Minimum Guarantee Premium exceeds the Guideline Level Premium, will have the option to elect this rider. DBPR cannot be added after issue. It is available for issue ages 0-75 and the Death Benefit Protection Period is 20 years for all issue ages, measured from the date of issue. There is no charge for this rider for issue ages less than 50 years. However, there is a charge for this rider on issue ages greater than 50. This charge will be defined as a rate per thousand of face amount and will vary by issue age and sex. The charge per thousand is level during the 20 year death benefit protection period. The dollar amount of the charge will increase when the face amount increases and decrease when the face amount decreases. Disability Income Rider (DIR) Two different DIRs are available, distinguished by a twoyear or a five-year benefit period. Both options provide for a fixed monthly benefit if the insured is totally disabled and unable to work. Both provide coverage for disabilities due to either sickness or accident. DIR coverage is not available on rated classes. Certain occupations are not eligible for coverage. Policy premiums are not automatically waived under the DIR; the Waiver of Specified Premium Rider/Waiver of Target Premium Rider must be in-force to waive policy premiums. Issue ages 18 55. DIR is available to the Primary Other Insured (see the Other Insured Rider description) as well as to the primary insured under the policy. Coverage stays in-force until the policy anniversary following the insured s 65th birthday, as long as the insured s life insurance coverage and the base policy remain in-force. Minimum benefit amount is $300/month. Maximum benefit amount is $2,000/month, subject to underwriting and any state limitations. The DIR benefit amount cannot exceed 66% of gross monthly income (40% in California) or $20 per $1,000 of life insurance. (For example, a $2,000 DIR must be attached to a base policy of at least $100,000). Premiums vary with issue age and remain level for the term of the rider. Rider benefit amounts cannot be increased or decreased after issue. However, an additional DIR may be added after issue, subject to underwriting and the maximum benefit limits. The DIR with the two-year maximum benefit period has a 3 month waiting period. Benefits are paid retroactively after the waiting period, from the date of disability. Disability is defined as the insured being unable to perform the duties of his or her own occupation. 12 12 In South Carolina, Disability is defined as the insured s inability to perform the duties of his or her own occupation during the first year of disability and the inability to perform the duties of any occupation for which he or she is suited thereafter. page 15
The DIR with the five-year maximum benefit period has a 6-month elimination period with no retroactive payment. Disability is defined as the insured being unable to perform the duties of his or her own occupation for a period of two years, and as unable to perform the duties of any occupation for which he or she is suited for the remaining three years. After-issue changes between the two-year and five-year riders are not permitted. If the insured is receiving benefits under the DIR when he or she reaches age 65, the benefit payments will continue until the end of the disability or the end of the benefit period. Note: An Attending Physician s Statement of Disability from a licensed medical physician will be required for all claims. Guaranteed Insurability Rider (GIR) The GIR allows the insured to increase insurance coverage without evidence of insurability, during specified option periods. Regular option periods run from the 60th day before to the 31st day after the policy anniversary on which the insured reaches age 25, 28, 31, 34, 37, or 40. Additional option periods are available based on marriage, the birth/adoption of a child, or purchase or refinancing of a home; there is a limit of two additional options. The GIR is not available on rated cases. No-Lapse Guarantee Rider (NLG) Available on Horizon only. This optional rider guarantees that the policy, including any riders, will not lapse regardless of the policy s accumulated value so long as the policy is funded at or above the Monthly Guaranteed Premium specified by the rider. This rider does not put any additional restrictions on the loan options available to the policyholder and this rider can be terminated by the policyholder at any time. Issue ages 0-85. There is a monthly charge associated with the rider which varies by issue age, sex and rate class The NLG rider is available on policies issued with a substandard rating This rider is only available on policies with Death Benefit Option A. Any change in the Death Benefit Option from A to B will terminate the NLG Rider The Other Insured Rider (OIR) Balance Sheet Benefit Rider (BSB) and Additional Protection Benefit Rider (APB) are not available on policies with the NLG Rider Rider cannot be added after issue Issue ages 0 37. GIR is available to the Primary Other Insured (see the Other Insured Rider description) as well as to the primary insured under the policy. Rider stays in-force until the policy anniversary following the insured s 40th birthday, as long as the base policy remains in-force. Minimum option amount is $5,000. Maximum option amount is the lesser of $50,000 or the insured s life insurance amount. Premiums are a level amount per thousand of option amount, based on issue age. page 16
Overloan Protection Rider (OPR) Available on IncomeBuilder and Horizon only. This rider protects your client s policy from lapsing in situations where loan balances threaten the policy s ability to stay in-force. If the following terms of the rider are met, the Overloan Protection Rider will restructure the policy as a paidup policy so that it is guaranteed not to lapse: Policy must be in corridor. Insured is age 75 or older. Policy must be in-force for at least 15 years. Loan must exceed face amount. Loan exceeds 95% of the account value less any surrender charge. The policyholder will be notified when eligibility requirements are met. The rider must be exercised within 60 days of the date we mail the notification. There is no additional cost until rider is exercised. Not available with CVAT. Other Insured Rider (OIR) The OIR provides low-cost annual renewable term insurance on an individual. The other insured may have any of the following relationships to the primary insured: Primary Insured Spouse Child Business partner Ineligible relationships for OIR coverage include parents, grandparents, siblings and grandchildren. Up to five OIR may be added to the same base policy. One of these OIRs (spouse or business partner only) may be designated as a Primary OIR ; additional riders are available options to the Primary OIR. The OIR is convertible to a permanent policy without evidence of insurability at any time while the rider is in force, or upon the death of the primary insured. Rider stays in-force until the other insured s age 100, as long as the base policy remains in force. Minimum OIR amount is $25,000 (or the primary insured s face amount, if less than $25,000). When the insured under an OIR is the same as the insured under the base policy, the maximum OIR face amount is two times the base face amount. Otherwise, the maximum OIR face amount is equal to the base face amount. Premiums are based on gender, rate class and age; the same rate classes are available as for the base policy. Benefits Available by Rider on Other Insureds Primary Other Insured Rider Accelerated Benefits Rider 1 Yes Yes Accelerated Benefits Rider 2 Yes Yes Accelerated Benefits Rider 3 Yes Yes Accidental Death Benefit Yes No Children s Term Rider No No Disability Income Rider Yes No Guaranteed Insurability Rider Yes No Unemployment Rider No No Waiver of Specified Premium Rider No No Waiver of Target Premium Rider No No Nonprimary Other Insured Rider page 17
Qualified Plan Exchange Privilege (QPEP) Rider Available on IncomeBuilder and Horizon only. For Qualified Pension and Profit Sharing Plan trust owned life insurance, the QPEP rider allows the policy to be surrendered while owned under the qualified plan and elect to have a new policy written outside of the qualified retirement. The face amount of the new Policy cannot be more than the face amount, less the policy s cash value, of the policy being surrendered on the date of exchange. The maximum face amount under the new policy cannot exceed $2,000,000 and must be at least $25,000. No evidence of insurability will be required and the new policy will be issued based on the age the insured has attained on the date of the exchange. The class of risk under the new policy will be the same as under the pension policy. The new policy date will be the date of the exchange. The new policy will be issued on a policy form and at a premium rate for the insured s attained age in use by the Company on the New Policy Date. Unemployment Rider (UR) The Unemployment Rider provides for a one-time lump sum payment into the policy after the insured has been involuntarily unemployed from full-time employment. This rider is automatically included on all non-pension Universal Life policies issued in states where it is approved. When the primary insured is involuntarily unemployed for three consecutive months, and submits proof such as state or federal unemployment certification, a termination notice or union certification, we will pay three months target premium into the policy s accumulated value. (The target premium is the monthly planned premium, up to 1/12 of the policy CTP.) The policy must be in-force when the unemployment begins, and must remain in force during the waiting period. Issue ages 0 60. Rider stays in-force until the policy anniversary following the insured s 65th birthday, as long as the base policy remains in-force. The benefit will be paid only once. Waiver of Specified Premium (WSP) Rider Available on IncomeBuilder and Horizon only. Waiver of Specified Premium Rider allows your client to determine how much of their premium will be waived in the event they become totally disabled. The WSP Rider has a six-month elimination period. Thereafter, the monthly benefit amount will be paid as a premium into the accumulated value of the policy during the continuance of the disability. Issue Ages 15-55 (age nearest birthday). Minimum Annual Benefit: Annualized minimum monthly premium less the annualized minimum monthly premium for the Waiver of Specified Premium Rider. Maximum Annual Benefit: Face Amount <$250,000: lesser of Planned Periodic premium and the CTP excluding the waiver rider. Face amount $250,000: Lesser of planned periodic premium and the Guideline Level Premium (GLP) excluding the waiver rider. The monthly charge for this rider will be the specified rate multiplied by the waiver of premium benefit amount. This rider stays in-force until the policy anniversary following the date the insured reaches age 60. Not available on single premium policies. Not available with a table rating greater than 200% or on policies with a flat extra greater than $5.00 per thousand. After Issue Changes The waiver benefit amount will be increased after issue if additional optional benefits results in a minimum benefit amount that exceeds the current benefit amount. Whenever this happens, the waiver benefit amount will be increased to the new minimum benefit amount. The original premium rate will continue to apply to the increased benefit amount. There is no premium for this rider. page 18