The commissioner will not approve any variable life insurance form filed under these rules unless it conforms to the requirement of applicable law.
  (1) Filing of variable life contracts. All variable life contracts, and all riders, endorsements, applications, and other documents that are to be attached to and made a part of the contract and that relate to the variable nature of the contract, must be filed with the commissioner and approved or exempted, as applicable, by the commissioner before delivery or issuance for delivery in this state.
    (A) Each variable life contract, rider, endorsement, and application must be filed in accordance with Chapter 3, Subchapter A, of this title (relating to Submission Requirements for Filings and Departmental Actions Related to Such Filings). A flexible premium variable life contract submission must be accompanied by the following:
      (i) a mathematical demonstration comparing the specimen contract's cash surrender values, assuming the contract's assumed investment rate, if any, or in the absence of an assumed investment rate, on a rate not to exceed the maximum interest rate allowed by Insurance Code Chapter 1105, concerning Standard Nonforfeiture Law for Life Insurance, to the minimum cash surrender value described in paragraph (2)(F) of this section. The specimen contract should be for the minimum initial face amount permitted to be issued to a male age 35. The demonstration should not assume changes in face amount that are optional to the contract holder. The maturity date and the premium paying period should be the maximum permitted by the contract. The premium for each year should be the greater of the minimum premium permitted for that year or the premium that will allow the contract to mature at the maturity date assuming guaranteed charges and the assumed investment rate, if any, or, in the absence of an assumed investment rate, a rate not to exceed the maximum interest rate permitted by Insurance Code Chapter 1105;
      (ii) an actuarial description that sets forth maximum expense charges, loads, and surrender charges, applicable to the contract at issue and upon a change in basic coverage for all ages, bands, and classes of risk, will be provided in conjunction with the contract.
    (B) The commissioner may approve variable life contracts and related forms with provisions the commissioner deems to be not less favorable to the contract holder and the beneficiary than those required by these rules.
  (2) Mandatory contract benefit and design requirements. Variable life contracts delivered or issued for delivery in this state must comply with the following minimum requirements.
    (A) Mortality and expense risks must be borne by the insurer. The expense charges must be subject to the maximums stated in the contract. The charge for mortality must be stated in the contract and may not exceed a mortality rate for the attained age of the insured in a table specified for the calculation of cash surrender values in Insurance Code Chapter 1105. Provided, for insurance issued on a substandard basis, the charge for mortality may be the mortality rate for the attained age of the insured in such other tables as may be specified by the company and approved by the Texas Department of Insurance.
    (B) For scheduled premium contracts, a minimum death benefit must be provided in an amount at least equal to the initial face amount of the contract so long as premiums are duly paid (subject to paragraph (4) of this section).
    (C) The contract must reflect the investment experience of one or more separate accounts established and maintained by the insurer. The insurer must demonstrate that the reflection of investment experience in the variable life contract is actuarially sound.
    (D) Each variable life contract must be credited with the full amount of the net investment return applied to the benefit base.
    (E) Any changes in variable death benefits of each variable life contract must be determined at least annually.
    (F) The cash surrender value of each variable life contract must be determined at least monthly. The method of computation of cash surrender values and other nonforfeiture benefits, as described in the contract and in a statement filed with the commissioner in this state in which the contract is delivered, or issued for delivery, must be in accordance with recognized actuarial procedures that recognize the variable nature of the contract. The method of computation must be such that if the net investment return credited to the contract at all times from the date of issue should be equal to the assumed investment rate with premiums and benefits determined accordingly under the terms of the contract, then the resulting cash surrender values and other nonforfeiture benefits must be at least equal to the minimum values required by Insurance Code Chapter 1105, for a general account contract with such premiums and benefits. The assumed investment rate may not exceed the maximum interest rate permitted under Insurance Code Chapter 1105. If the contract does not contain an assumed investment rate, this demonstration must be based on a rate not to exceed the maximum interest rate permitted under Insurance Code Chapter 1105. The method of computation may disregard incidental minimum guarantees as to the dollar amounts payable. Incidental minimum guarantees include, for example, but are not limited to, a guarantee that the amount payable at death or maturity is at least equal to the amount that otherwise would have been payable if the net investment return credited to the contract at all times from the date of issue had been equal to the assumed investment rate.
  (3) Mandatory contract provisions. Every variable life contract filed for approval in this state must contain at least the following.
    (A) The cover page or pages corresponding to the cover page of each contract must contain:
      (i) a prominent statement in either contrasting color or in boldface type that the amount or duration of death benefit may be variable or fixed under specified conditions;
      (ii) a prominent statement in either contrasting color or in boldface type that cash surrender values may increase or decrease in accordance with the experience of the separate account, subject to any specified minimum guarantees;
      (iii) a statement describing any minimum death benefit required under paragraph (2)(B) of this section;
      (iv) the method, or a reference to the contract provision that describes the method, for determining the amount of insurance payable at death;
      (v) a captioned provision that the contract holder may return the variable life contract within 10 days of receipt of the contract by the contract holder, and receive a refund equal to the premiums paid;
      (vi) such other items as are currently required for fixed benefit life contracts and that are not inconsistent with this subchapter.
    (B) A grace period in accordance with this subparagraph.
      (i) For scheduled premium contracts, a provision for a grace period of not less than 31 days from the premium due date that must provide that when the premium is paid within the grace period, cash surrender values will be the same, except for the deduction of any overdue premium, as though the premium were paid on or before the due date.
      (ii) For flexible premium contracts, a provision for a grace period beginning on the contract processing day when the total charges authorized by the contract that are necessary to keep the contract in force until the next contract processing day exceed the amounts available under the contract to pay such charges in accordance with the terms of the contract. Such grace period must end on a date not less than the later of the date 61 days after the contract processing day when the grace period begins, or the date that is 31 days after the mailing date of the report to contract holders required by §4.1509(3) of this title (relating to Reports to Contract Holders). The death benefit payable during the grace period will equal the death benefit in effect immediately before such period less any overdue charges. If the contract processing days occur monthly, the insurer may require payment of an amount equal to the greater of:
        (I) not more than three times the charges that were due on the contract processing day on which the amounts available under the contract were insufficient to pay all charges authorized by the contract that are necessary to keep such contract in force until the next contract processing day; or
        (II) the amount necessary to keep such contract in force for a period of three calendar months from the contract processing day on which the amounts available under the contract were insufficient to pay all charges authorized by the contract.
Cont'd...