-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UBVgwxOy8gAH3aGt5K4jYKYcLy3LuOkHdO4xmZPjoqyLi6SziYgHe8OHj1AD/Ps8 rH76slKzeXeboiIIbjHSGw== 0000904456-98-000018.txt : 19980202 0000904456-98-000018.hdr.sgml : 19980202 ACCESSION NUMBER: 0000904456-98-000018 CONFORMED SUBMISSION TYPE: S-6 PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 19980130 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: LIFE INSURANCE SEPARATE ACCOUNT OF USAA LIFE INSURANCE CO CENTRAL INDEX KEY: 0001052863 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-6 SEC ACT: SEC FILE NUMBER: 333-45343 FILM NUMBER: 98518634 BUSINESS ADDRESS: STREET 1: USAA BUILDING STREET 2: 9800 FREDERICKBURG RD CITY: SAN ANTONIO STATE: TX ZIP: 78288 BUSINESS PHONE: 2104980676 MAIL ADDRESS: STREET 1: USAA BUILDING STREET 2: 9800 FREDERICKSBURG RD CITY: SAN ANTONIO STATE: TX ZIP: 78288 S-6 1 Registration No. 333-________ As filed with the Securities and Exchange Commission on January 30, 1998 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM S-6 FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933 OF SECURITIES OF UNIT INVESTMENT TRUSTS REGISTERED ON FORM N-8B-2 LIFE INSURANCE SEPARATE ACCOUNT OF USAA LIFE INSURANCE COMPANY (Exact Name of Trust) USAA LIFE INSURANCE COMPANY (Name of Depositor) 9800 Fredricksburg Road, C-3-W San Antonio, Texas 78288 (Complete Address of Depositor's Principal Executive Offices) DWAIN A. AKINS, ESQ. Assistant Vice President and Assistant Secretary USAA Life Insurance Company 9800 Fredricksburg Road, C-3-W San Antonio, Texas 78288 (Name and Complete Address of Agent for Service) Please send copies of all communications to: GARY O. COHEN, ESQ. Freedman, Levy, Kroll & Simonds 1050 Connecticut Avenue, N.W., Suite 825 Washington, D.C. 20036 (202) 457-5107 Title and Amount of Securities Being Registered: An Indefinite Amount of Interests in Life Insurance Separate Account of USAA Life Insurance Company Under Variable Universal Life Insurance Policies Approximate Date of Proposed Public Offering: As soon as practicable after the effective date of this Registration Statement. Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. This filing is made pursuant to Rules 6c-3 and 6e-3(T) under the Investment Company Act of 1940. Registrant elects to be governed by Rule 6e-3(T)(b)(13)(i)(B) under the Investment Company Act of 1940, with respect to the Variable Universal Life Insurance Policy described in the Prospectus. ii RECONCILATION AND TIE BETWEEN ITEMS IN FORM N-8B-2 AND THE PROSPECTUS LIFE INSURANCE SEPARATE ACCOUNT OF USAA LIFE INSURANCE COMPANY
ITEM NO. OF FORM N-8B-2 * CAPTION IN PROSPECTUS** 1 Cover Page 2 Cover Page 3 Not Applicable 4 Policy Distribution 5 Definitions 6 Separate Account 7 Not Required*** 8 Not Required*** 9 Legal Matters 10 Death Benefit; Other Policy Benefits; Payment of Policy Benefits; Transfer of Cash Value; Loans; Surrenders; Policy Lapse and Reinstatement; Investment Options - Voting Privileges; Investment Options - Additions or Changes to Investment Options; The Contract 11 Investment Options 12 Investment Options 13 The Policy at a Glance - Policy Charges and Deductions; The Policy at a Glance - Fund Fees and Other Expenses; Charges and Deductions; USAA Life 14 Policy Issuance; Premium Payments iii 15 Premium Payments; Investment Options 16 Premium Payments - Allocation of Premiums; Investment Options 17 Death Benefit; Other Policy Benefits; Payment of Policy Benefits; Transfer of Cash Value; Loans; Surrenders; Policy Lapse and Reinstatement 18 Tax Matters - Taxation of Policy Proceeds: Our Taxes; Separate Account; Charges and Deductions - Monthly Deductions: Mortality and Expense Risk Charge; Financial Statements 19 USAA Life; Reports and Records 20 Not Applicable 21 Loans 22 Not Applicable 23 Not Applicable** 24 Charges and Deductions; Cash Value; Telephone Transactions; Free Look Right; Postponement of Payments; More Policy Information 25 USAA Life 26 Not Applicable 27 USAA Life 28 USAA Life - Directors of USAA Life; USAA Life - Officers (other than Directors) 29 USAA Life 30 Not Applicable 31 Not Applicable 32 Not Applicable iv 33 Not Applicable 34 Not Applicable 35 Policy Distribution 36 Not Required*** 37 Not Applicable 38 Policy Distribution 39 Policy Distribution 40 Not Applicable 41 Policy Distribution; Investment Options 42 Not Applicable 43 Not Applicable 44 Charges and Deductions - Other Charges; Investment Options 45 Not Applicable 46 Charges and Deductions - Other Charges; Investment Options 47 Not Applicable 48 Not Applicable 49 Not Applicable 50 Not Applicable 51 Not Applicable** 52 Investment Options - Additions or Changes to Investment Options v 53 Tax Matters - Taxation of USAA Life 54 Not Applicable 55 Not Applicable** 56 Not Required*** 57 Not Required*** 58 Not Required*** 59 Not Required*** * Registrant includes this Reconciliation and Tie Sheet in its Registration Statement in compliance with Instruction 4 as to the Prospectus as set out in Form S-6. Registrant, simultaneously herewith, filed a Notification of Registration as an investment company on Form N-8A and a Form N-8B-2 Registration Statement under the Investment Company Act of 1940. Pursuant to Sections 8 and 30(b)(1) of the Investment Company Act of 1940, Rule 30a-1 under that Act, and Forms N-8B-2 and N-SAR under that Act, Registrant will keep its Form N-8B-2 Registration Statement current through the filing of periodic reports required by the Securities and Exchange Commission. ** Caption in Prospectus, to the extent relevant to this Form. Certain items are not relevant pursuant to the administrative practice of the Commission and its staff of adapting the disclosure requirements of the Commission's registration statement forms in recognition of the differences between variable life insurance policies and other periodic payment plan certificates issued by investment companies and between separate accounts organized as management companies and unit investment trusts. *** Not required pursuant to Instruction 1(a) as to the Prospectus as set out in Form S-6.
vi VARIABLE UNIVERSAL LIFE INSURANCE POLICY Offered By Prospectus dated: May 1, 1998 USAA LIFE INSURANCE COMPANY 9800 Fredericksburg Road, San Antonio, Texas 78288 Telephone: toll free 1-800-531-8000 (in San Antonio call 512-498-____) This Prospectus describes a Variable Universal Life Insurance Policy ("Policy") that we are offering, through our Life Insurance Separate Account, to individual members of the United Services Automobile Association ("USAA"), the parent company of the USAA Group of Companies, as well as to the general public. The Policy offers you: o Life insurance protection guaranteed by USAA Life. SEE "Policy Benefits." o 12 investment options, available through the Separate Account, including Funds of USAA LIFE INVESTMENT TRUST, THE ALGER AMERICAN FUND, SCUDDER VARIABLE LIFE INVESTMENT FUND, and BT INSURANCE FUNDS TRUST. SEE "Investment Options" and the accompanying Fund prospectuses for a description of the Funds. o Flexible premium payments. SEE "Premium Payments." Please read this Prospectus carefully and keep it for future reference. Your Prospectus and Policy may reflect variations required by the laws of your state. This Prospectus is not valid unless accompanied by the current prospectuses for the Funds. Defined terms used in this Prospectus appear at the end of this booklet. THE SECURITIES AND EXCHANGE COMMISSION ("SEC") HAS NOT APPROVED OR DISAPPROVED THE SECURITIES DESCRIBED IN THIS PROSPECTUS NOR HAS IT PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE POLICIES ARE SOLELY THE OBLIGATIONS OF USAA LIFE AND ARE NOT THE OBLIGATIONS OF, OR GUARANTEED BY, ANY ONE ELSE. THE POLICY DOES NOT HAVE A MINIMUM GUARANTEED CASH VALUE, WHICH MEANS THAT YOU BEAR THE ENTIRE INVESTMENT RISK THAT YOUR POLICY CASH VALUE COULD DECLINE TO ZERO. YOU MAY CANCEL THE POLICY WITHIN 10 DAYS AFTER RECEIVING IT, OR SUCH LONGER PERIOD AS THE LAWS OF YOUR STATE MAY REQUIRE. [FRONT COVER PAGE] TABLE OF CONTENTS Page ---- THE POLICY AT A GLANCE QUESTIONS AND ANSWERS POLICY INFORMATION POLICY ISSUANCE Who May Purchase a Policy How to Purchase a Policy Effective Date of Your Policy PREMIUM PAYMENTS Methods of Payment Amount and Frequency of Payments Allocation of Premiums Planned Periodic Premium Payments Annual Target Premium Payments INVESTMENT OPTIONS Additions or Changes to Investment Options Voting Privileges Special Considerations POLICY LAPSE AND REINSTATEMENT Lapse Grace Period Guaranteed Death Benefit Reinstatement CHARGES AND DEDUCTIONS Premium Charge Monthly Deductions Separate Account Charges Transfer Charges Surrender Charges Other Charges Deduction of Charges DEATH BENEFIT Choosing Between Option A and Option B Illustrations of Option A and Option B Changing Your Death Benefit Option Changing Your Policy's Specified Amount OTHER POLICY BENEFITS Optional Insurance Benefits Benefits at Maturity PAYMENT OF POLICY BENEFITS Payment of Death Benefits Payment of Maturity Benefits Death Benefit Payment Options CASH VALUE 2 Calculating Your Cash Value in the Variable Fund Accounts TRANSFER OF CASH VALUE LOANS Loan Collateral Loan Interest Repayment of Indebtedness Effect of Policy Loans SURRENDERS Full Surrenders Partial Surrenders TELEPHONE TRANSACTIONS FREE LOOK RIGHT POSTPONEMENT OF PAYMENTS MORE POLICY INFORMATION OWNERS AND BENEFICIARIES Owners Beneficiaries CALCULATING YOUR COST OF INSURANCE Net Amount at Risk Net Amount at Risk - More Than One Rate Class Cost of Insurance Rates MINIMUM AMOUNT INSURED THE CONTRACT INCONTESTABILITY MISSTATEMENT OF AGE OR SEX SUICIDE EXCLUSION NON-PARTICIPATING POLICY REPORTS AND RECORDS PERFORMANCE INFORMATION OTHER INFORMATION USAA LIFE Directors of USAA Life Officers (other than Directors) SEPARATE ACCOUNT POLICY DISTRIBUTION TAX MATTERS Taxation of Policy Proceeds Taxation of USAA Life STATE REGULATION OF USAA LIFE LEGAL MATTERS EXPERTS REGISTRATION STATEMENT FINANCIAL STATEMENTS DEFINITIONS
3 THE POLICY AT A GLANCE The following is a snapshot of the Policy. Please refer to the remainder of the Prospectus for further details and other information. PREMIUM PAYMENTS AND WITHDRAWALS MINIMUM AMOUNTS Initial Premium Depends on Specified Amount of insurance coverage Subsequent Premiums Depends on Specified Amount of insurance coverage Withdrawals None
INSURANCE BENEFITS DEATH BENEFITS Option A Greater of Specified Amount or Minimum Amount Insured Option B Greater of Specified Amount plus cash value or Minimum Amount Insured Minimum Coverage Required $100,000 ($25,000 for Insureds under age 18) Minimum Increase or Decrease $25,000, subject to $50,000 minimum in Coverage coverage amount ($25,000 for Insureds under age 18) with certain exceptions OPTIONAL INSURANCE Accelerated Benefit for Terminal Illness BENEFITS AVAILABLE Accidental Death Benefit BY RIDER Children Term Life Insurance Extended Maturity Date Waiver of Monthly Deduction in Event of Permanent Disability BENEFITS AT MATURITY Current Policy cash value
POLICY CHARGES AND DEDUCTIONS PREMIUM CHARGE 3% (waived if 10 Annual Target Premium Payments paid) MONTHLY DEDUCTIONS Cost of Insurance Charge Depends on age, sex, and rate class of Insured Administrative Charge $10 (applies only during first Policy Year) Maintenance Charge $5 TRANSFER CHARGE $0 for first six transfers each Policy Year; $25 per transfer in excess of six per Policy Year SEPARATE ACCOUNT CHARGES Mortality and Expense Charge 0.75% of net assets of Separate Account Federal Income Tax Charge Currently none SURRENDER CHARGES Partial Surrender Lesser of $25 or 2% of amount withdrawn Full Surrender Maximum of 50% of Annual Target Premium Payment (declines each Policy year to 0% after the 10th Policy Year)
4 FUND FEES AND OTHER EXPENSES
OTHER EXPENSES TOTAL FUND MANAGEMENT AFTER OPERATING FEES EXPENSE EXPENSES REIMBURSEMENT USAA LIFE INVESTMENT TRUST Money Market Fund Income Fund Growth and Income Fund World Growth Fund Diversified Assets Fund Aggressive Growth Fund International Fund ALGER AMERICAN FUND [TO BE Growth Portfolio SUPPLIED BY AMENDMENT] SCUDDER VARIABLE LIFE INVESTMENT FUND Capital Growth Portfolio-- Class A Shares BT INSURANCE FUNDS TRUST Equity 500 Index Fund Small Cap Index Fund EAFE(R) Equity Index Fund
TRANSFERS Number of free transfers 6 per Policy Year Minimum amount of transfer $250 (or remaining cash value in Variable c Fund Account, if less)
LOANS Minimum Loan Amount None Maximum Loan Amount 85% of cash surrender value Maximum Interest Rate 6% payable in advance, 4.5% preferred rate payable in advance
QUESTIONS AND ANSWERS The following are answers to some basic questions about the Policy. Please read the remainder of this Prospectus for further details. WHAT KIND OF LIFE INSURANCE IS THE POLICY? The Policy is a FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY. The Policy is called "flexible premium" because it gives you the flexibility to vary the amount and frequency of your premium payments, within certain limits. 5 SEE "Premium Payments." The Policy is called "variable" life insurance because your cash value, your cost of insurance charges, and your life insurance (death) benefits can vary according to your investment in one or more Variable Fund Accounts. SEE "Cash Value," "Charges and Deductions - Monthly Deductions," and "Death Benefit." Your investment experience in the Variable Fund Accounts may be positive or negative. THE POLICY HAS NO MINIMUM GUARANTEED CASH VALUE, WHICH MEANS YOU BEAR THE ENTIRE INVESTMENT RISK THAT YOUR CASH VALUE COULD DECLINE TO ZERO. HOW DO I BUY A POLICY? You can buy a Policy by calling us at 1-800-531-8000 or by contacting one of our regional offices. Our licensed insurance representatives can help you complete an application and assist you through our application or "underwriting" process, which normally involves a medical exam. We will issue a Policy to you, provided you meet our requirements for insurability. We will not issue a Policy that insures a person older than age 80. We also reserve the right to reject an application for any reason. Insurance coverage under your Policy begins on its Effective Date. SEE "Policy Issuance." HOW MUCH INSURANCE CAN I BUY? The minimum amount of insurance you can buy is $100,000 ($25,000 if the Insured is less than 18 years of age). We call the amount of insurance that you specify on your application the "Specified Amount." Federal tax law limits your ability to make certain amounts of large premium payments relative to your Policy's Specified Amount and may impose penalties on amounts you take out of your Policy if you do not observe certain additional requirements. SEE "Premium Payments - Amount and Frequency of Payments" and "Tax Matters." We will monitor your premium payments to be sure that you do not exceed permitted amounts or inadvertently incur any tax penalties due to excess premium payments. You can change the Specified Amount, at any time, subject to the conditions described under "Death Benefit Changing Your Policy's Specified Amount." WHAT INSURANCE PROTECTION DOES THE POLICY OFFER? The Policy offers two types of insurance protection or "death benefit" options. If you select the Option A death benefit, upon the Insured's death, we will pay your beneficiary the greater of your Policy's Specified Amount or the Minimum Amount Insured. If you select the Option B death benefit, upon the Insured's death, we will pay your beneficiary the greater of your Policy's Specified Amount and your cash value, on the one hand, or the Minimum Amount Insured on the other. SEE "Death Benefit." As long as the Policy remains in effect, under either option, the death benefit will never be less than the Policy's Specified Amount, less any Indebtedness and any due and unpaid Monthly Deductions. In addition, you can add optional insurance death benefits to a Policy by rider. SEE "Optional Insurance Benefits." 6 HOW MUCH ARE THE PREMIUM PAYMENTS? Within certain limits, you have the flexibility to determine the amount and timing of your premium payments to reflect your changing financial conditions or objectives. We generally require a minimum initial premium to issue a Policy, but we do not impose a minimum on your subsequent premium payments. SEE "Premium Payments." You must, of course, maintain sufficient cash value to keep your Policy in effect, which may require you to make additional unscheduled premium payments. SEE "Policy Lapse and Reinstatement." You will usually plan a periodic premium schedule when applying for a Policy. If you wish, we will bill you for these amounts. However, you are not required to follow this schedule. SEE "Premium Payments." WHAT ARE THE CHARGES AND DEDUCTIONS? We assess certain charges and deductions to support the operation of your Policy and the Separate Account. Some charges apply to your premium payments, some apply to your cash value, and others apply to the Separate Account. In addition, we assess administrative fees for processing Policy transactions, such as partial surrenders of cash value and transfers of cash value among Variable Fund Accounts in excess of six free transfers. SEE "The Policy At a Glance" and "Charges and Deductions." WHAT FACTORS AFFECT MY COST OF INSURANCE? If you are the Insured, your cost of insurance will depend on your age, sex, and rate class. The rate class that applies depends on your health, whether you use tobacco, and other factors that we use to determine your insurability. During the life of the Policy, the maximum monthly cost of insurance charges will never exceed the guaranteed monthly cost of insurance rates specified in your Policy. SEE "Calculating Your Cost of Insurance." WHAT IS THE SEPARATE ACCOUNT? The Separate Account is a segregated asset account of USAA Life that supports the Policy's variable life insurance benefits. The Separate Account consists of 12 Variable Fund Accounts, each of which invests in a corresponding Fund. SEE "Investment Options." WHAT ARE MY INVESTMENT CHOICES? You may invest in up to 12 Variable Fund Accounts, each of which invests exclusively in a corresponding Fund of the USAA Life Investment Trust, The Alger American Fund, Scudder Variable Life Investment Fund, or BT Insurance Funds Trust. SEE "Investment Options." 7 HOW WILL MY POLICY'S CASH VALUE VARY? Your Policy's cash value will vary on a daily basis to reflect the investment experience of the Variable Fund Accounts. Your Policy's cash value also will reflect the amount and frequency of premium payments, any partial surrenders of cash value, any Policy loans and the charges and deductions connected with the Policy. There is no minimum guaranteed cash value, which means you bear the entire investment risk that your cash value could decline to zero. SEE "Cash Value." HOW MAY I ALLOCATE MY CASH VALUE? You may allocate your cash value to any of the Variable Funds Accounts by specifying on your Policy application how much of your Net Premium Payment you would like us to apply to each Account. We will allocate your Net Premium Payments in accordance with your allocation instructions on your application, until you direct otherwise. You may change future allocations at any time by telephone or by Notice to Us. You may allocate your Net Premium Payment in increments as small as1/10 of one percent. SEE "Premium Payments." CAN I TRANSFER CASH VALUE AMONG INVESTMENT OPTIONS? Yes. You can transfer cash value among the Variable Fund Accounts up to six (6) times per Policy Year without charge. Each transfer above six (6) in a Policy Year is subject to a $25 transfer charge. You may authorize transfers by telephone or by Notice to Us. SEE "Telephone Transactions." Each transfer must be at least $250, or the remaining cash value in the Variable Fund Account, if less. SEE "Transfers." HOW DO I ACCESS MY CASH VALUE? You can partially or fully surrender the Policy for a portion or all of its cash value, less any applicable charges, any Indebtedness, and any due and unpaid Monthly Deductions. We assess an administrative charge equal to the lesser of $25 or 2% of the amount withdrawn for each partial surrender paid. We also assess a surrender charge for full surrenders. SEE "Surrenders" and "Charges and Deductions - Surrender Charges." Partial surrenders and related surrender charges will reduce your Policy's death benefit on a dollar for dollar basis. SEE "Changing Your Policy's Specified Amount" under "Death Benefits." Full surrenders will terminate the Policy. SEE "Tax Matters" for a discussion of the tax consequences of surrenders. CAN I BORROW AGAINST THE POLICY'S CASH VALUE? Yes. You can borrow money from us by using your Policy as the sole security for the loan. The most you can borrow against your Policy is 85% of its cash surrender value. In some cases, we may reduce the amount you can borrow. Interest on any loan is payable in advance at the maximum annual interest rate of 6% (4.5% for preferred loans.). Lower rates may be available. 8 A loan, whether repaid or not, will have a permanent effect on the death benefit and cash value of your Policy. SEE "Loans." WHAT WILL CAUSE THE POLICY TO LAPSE WITHOUT VALUE? Lapse will only occur when your cash value is insufficient to pay the Monthly Deduction plus any loan interest then due and we do not receive sufficient payment during the grace period. SEE "Lapse and Reinstatement." WILL THE POLICY'S DEATH BENEFIT AND CASH VALUE BE TAXED? The Policy meets the definition of a "life insurance contract" under federal tax law. Therefore, the Policy's death benefit should be fully excludable from the beneficiary's gross income if paid by reason of the death of the Insured. In addition, any earnings on your investment in a Variable Fund Account should not be taxable to you while the Policy is in effect unless you surrender some or all of your Policy's cash value. We do not intend this discussion to be tax advice. You should consult with your own tax advisor before purchasing a Policy. SEE "Tax Matters." DO I HAVE A "FREE LOOK" RIGHT TO EXAMINE THE POLICY? Yes. You may cancel the Policy within 10 days after receiving it, or such longer period as state law may require. USAA Life will refund the greater of your premium payments or the value of the Variable Fund Accounts as of the Date of Receipt of your cancellation request. SEE "Free Look Right." POLICY INFORMATION POLICY ISSUANCE WHO MAY PURCHASE A POLICY Any individual of legal age in a state where the Policies may be lawfully sold can apply to purchase a Policy. However, we will not issue a Policy that insures a person who is over 80 years of age. HOW TO PURCHASE A POLICY To obtain a Policy, you must complete an application and submit it, along with your initial premium payment (if required), to our Home Office. You also must provide us with satisfactory evidence of your insurability as part of the application or "underwriting" process. During the underwriting process, we will normally ask you to complete a medical examination so that we can 9 assign you to an underwriting or "rate" class that we will use to determine your cost of insurance charges. After we complete our underwriting process, we will promptly notify you of our decision regarding your application. We reserve the right to reject any application for any reason. If we accept your application, the insurance coverage provided by your Policy will begin as of the Effective Date. We may, in our discretion, backdate the Effective Date of a Policy by up to six months prior to the date of your application, if by doing so the Insured's issue age, and hence your cost of insurance charges, would be lower. If we backdate a Policy, your initial premium must include sufficient premium to cover the backdating period. We will make Monthly Deductions for the period the Policy is backdated. You will not receive any investment performance for the backdating period. EFFECTIVE DATE OF YOUR POLICY Insurance coverage begins on the Policy's Effective Date. We will need to receive your first premium payment to put your Policy into effect, unless the Specified Amount you are applying for, plus any other insurance you currently have with USAA Life, exceeds $500,000, in which case we will bill you. If you pay your first full premium with your Policy application and we issue the Policy as applied for, the Effective Date will ordinarily be the date we approve the application and issue your Policy. PREMIUM PAYMENTS METHODS OF PAYMENT We accept premium payments made by check or money order drawn on a U.S. bank in U.S. dollars and made payable to "USAA Life Insurance Company" or "USAA Life." We also accept premium payments made by bank draft, by wire, or by exchange from another insurance company. All premium payments must be sent directly to our Home Office. You can also use our Automatic Payment Plan to have monthly premium payments automatically deducted from your bank account. For further information about how to make premium payments by these methods and any other method we may make available, please contact us by calling 1-800-531-8000. AMOUNT AND FREQUENCY OF PAYMENTS You generally have the flexibility to determine the amount and frequency of your premium payments. You must, however, maintain sufficient cash value to keep your Policy in effect. SEE "Lapse and Reinstatement." In addition, you must observe the limitations described below. INITIAL PREMIUM PAYMENT. To issue a Policy, we generally require that you provide us with an initial premium payment equal to at least one full Planned Periodic Premium Payment, as specified in your Policy. If you have 10 elected to use our Automatic Payment Plan, the minimum initial premium payment would equal two (2) monthly payments under the Plan. MINIMUM AND MAXIMUM PREMIUM PAYMENTS. Except for your initial premium payment, we do not require any minimum premium payment. However, at no time may the total amount of your premium payments exceed the maximum amount allowed by federal tax law, unless necessary to prevent lapse. We will monitor your premium payments to be sure that you do not exceed that limitation or inadvertently incur any tax penalties due to excess premium payments. If a premium payment would cause you to exceed the maximum amount allowed by federal tax law, we will refund the excess premium payment to you. We also may invite you to apply, subject to proof of insurability, to increase the Specified Amount of your Policy. For more information, please refer to "Tax Matters." ALLOCATION OF PREMIUMS On your Policy application, you must specify how much of your Net Premium Payments you want to allocate to each Variable Fund Account. You can specify allocations in increments as small as 1/10th of one percent, provided that the total amount of your allocations equals 100%. PREMIUMS RECEIVED DURING THE APPLICATION PROCESS. We will hold your initial premium payment in our general account during the application process. During this time, we will not credit any earnings to you. PREMIUMS RECEIVED DURING FREE LOOK PERIOD. We will allocate your initial Net Premium Payment to the Money Market Variable Fund Account at the Account's Accumulation Unit value next computed on the date we accept your application. We will allocate any subsequent Net Premium Payment that you make during your Free Look Period to the Money Market Variable Fund Account at the Account's Accumulation Unit value next computed on the Date of Receipt of the payment. SEE "Calculating Your Cash Value in the Variable Fund Accounts." Your Net Premium Payments will remain in the Money Market Variable Fund Account for the Free Look Period plus five days. On the Valuation Date immediately following the end of that period, we will allocate your Net Premium Payments, plus any earnings, among the Variable Fund Accounts in accordance with the allocation instructions specified on your Policy application, at the Accumulation Unit value next computed on that Date. PREMIUMS RECEIVED AFTER FREE LOOK PERIOD. We will allocate Net Premium Payments that you make after your Free Look Period in accordance with the allocation instructions specified on your Policy application, unless you direct otherwise. We will credit your Net Premium Payments to the Variable Fund Accounts on the Date of Receipt at the Accumulation Unit value next computed on that Date. CHANGING YOUR ALLOCATIONS. You may change your allocation instructions at any time by telephone or by Notice to Us. There are no charges or fees for changing your allocation instructions. The allocation change will become effective with the first premium payment we receive on or following the Date of Receipt of your request. 11 PLANNED PERIODIC PREMIUM PAYMENTS You may, for convenience, choose to make planned periodic premium payments. Your Policy will show a schedule of planned periodic premium payments and, if you like, we will send you premium notices at quarterly, semi-annual, or annual intervals. To facilitate planned periodic premium payments, we also will accept monthly premium payments through our Automatic Payment Plan. You are not obligated to follow the schedule of planned periodic premium payments and failing to do so will not itself cause your Policy to lapse. Conversely, following the schedule will not guarantee that your Policy will remain in effect, unless you have made enough premium payments to qualify for the Guaranteed Death Benefit. SEE "Guaranteed Death Benefit." ANNUAL TARGET PREMIUM PAYMENT We will use the Annual Target Premium Payment specified in your Policy to determine whether we will deduct a premium charge from your premium payments or a surrender charge if you fully surrender. SEE "Premium Charge" and "Surrender Charge" under "Charges and Deductions." We also will use the Annual Target Premium Payment to determine whether the Guaranteed Death Benefit applies. SEE "Guaranteed Death Benefit" under "Lapse and Reinstatement." INVESTMENT OPTIONS Currently, you may invest, through the Separate Account, in up to 12 Funds. The Separate Account consists of 12 Variable Fund Accounts, seven of which correspond to Funds of USAA Life Investment Trust, three of which correspond to BT Insurance Funds Trust, and one each of which corresponds to a Fund of The Alger American Fund and Scudder Variable Life Investment Fund. You can invest in a Fund by allocating Net Premium Payments to the corresponding Variable Fund Account. A brief description of each Fund appears in the table below. For more information, including a discussion of potential investment and other risks, please refer to the accompanying prospectuses for the Funds. 12 Investment Objective FUND USAA LIFE INVESTMENT TRUST MONEY MARKET FUND Highest level of current income consistent with preservation of capital and maintenance of liquidity INCOME FUND Maximum current income without undue risk to principal GROWTH AND INCOME FUND Capital growth and current income WORLD GROWTH FUND Long-term capital appreciation DIVERSIFIED ASSETS FUND Long-term capital growth, consistent with preservation of capital and balanced by current income AGGRESSIVE GROWTH FUND Appreciation of capital INTERNATIONAL FUND Capital appreciation with current income as a secondary objective THE ALGER AMERICAN FUND Growth Portfolio Long-term capital appreciation SCUDDER VARIABLE LIFE INVESTMENT FUND Capital Growth Portfolio - Maximize long-term capital growth from a Class A shares portfolio consisting primarily of equity securities BT INSURANCE FUNDS TRUST To replicate as closely as possible the Equity 500 Index Fund performance of the Standard & Poor's 500 Composite Stock Price Index before the deduction of Fund expenses. Small Cap Index Fund To replicate as closely as possible the performance of the Russell 2000 Index before the deduction of Fund expenses. EAFE(R) Equity Index Fund To replicate as closely as possible the performance of the Morgan Stanley Capital International Europe, Australia, Far East (EAFE) Index before the deduction of Fund expenses. 13 ADDITIONS OR CHANGES TO INVESTMENT OPTIONS We may, from time to time, make additional Funds or Mutual Funds available as investment options through corresponding Variable Fund Accounts. We may do so when, for example, we believe marketing or investment conditions warrant. We also reserve the right, subject to compliance with applicable law, to change the Funds that are or may be available as investment options. We may, for example, eliminate or merge one or more Funds or substitute the shares of a Fund for those of another Fund or Mutual Fund. We may do so, in our sole discretion, if in our judgment further investment in any Fund would be inappropriate in view of the purposes of the Policies. We will give you written notice of the addition, elimination, merger, or substitution of any Fund as required by law. In any event, the Separate Account may purchase other securities for other classes of policies. In the event of any substitution or other change, we may, by appropriate endorsement, make any changes in your Policy and any future policies as may be necessary or appropriate to reflect the substitution or change. Also, we may operate the Separate Account as a management company, we may deregister it with the SEC in the event such registration is no longer required, or we may combine it with other USAA Life separate accounts. VOTING PRIVILEGES From time to time, a Fund may seek shareholder approval on certain matters. Each Variable Fund Account is a shareholder of the corresponding Fund in which it invests. As the depositor of the Variable Fund Accounts, we are entitled to vote the shares held by the Accounts. However, in our view, applicable law currently requires us to vote the shares held by our Variable Fund Accounts in accordance with instructions that we receive from Owners who have a voting interest in the Funds. We presently intend to do so. We also will vote shares on which we have received no instructions, as well shares that we own that are not attributable to Policies, in the same proportion as we vote shares for which we have received instructions. If, however, applicable law changes or our view of the law changes, we may elect to vote the Fund shares in our own right. The number of Fund shares for which you may provide instructions depends on your cash value in each corresponding Variable Fund Account, determined as of the record date established by the Fund for determining shareholders. SEE "Cash Value." We will send you voting instruction forms and related materials at the appropriate time. We may disregard your voting instructions under certain circumstances permitted by applicable law. In the event we disregard voting instructions, we will include a summary of that action and the reasons for such action in the next report to Owners. 14 SPECIAL CONSIDERATIONS Each Mutual Fund offers its shares to separate accounts of unaffiliated life insurance companies to fund benefits under variable annuity contracts and variable life insurance policies. We do not foresee any disadvantage to Owners arising out of these arrangements. Nevertheless, differences in treatment under tax and other laws, as well as other considerations, could cause the interests of various purchasers of contracts and policies to conflict. For example, violation of the federal tax laws by one separate account investing in a Mutual Fund could cause the contracts or policies funded through another separate account to lose their tax-deferred status, unless remedial action were taken. If a material irreconcilable conflict arises between separate accounts, a separate account may be required to withdraw its participation in a Mutual Fund. If it becomes necessary for any separate account to replace shares of a Mutual Fund with another investment, the Mutual Fund may have to liquidate portfolio securities on a disadvantageous basis. At the same time, each Mutual Fund and USAA Life are subject to conditions imposed by the SEC that are designed to prevent or remedy any conflict of interest. In this connection, the Board of Trustees of each Mutual Fund has the obligation to monitor events in order to identify any material irreconcilable conflict that may possibly arise and to determine what action, if any, should be taken to remedy or eliminate the conflict. POLICY LAPSE AND REINSTATEMENT LAPSE Your Policy will lapse at any time that your Policy cash value is insufficient to pay the Monthly Deduction and any loan interest then due, unless you have paid enough premiums to qualify for the Guaranteed Death Benefit. SEE "Guaranteed Death Benefit." GRACE PERIOD You have a grace period during which to provide us with sufficient payment to keep your Policy in force. The grace period will begin on any Monthly Anniversary when your Policy cash value is insufficient to cover the Monthly Deduction and any loan interest then due for the following month and any loan interest then due. We will notify you, and any assignee of record, of the date the grace period expires and of the premium necessary to continue the Policy in effect. During the grace period, you must submit enough premium to cover three (3) Monthly Deductions and any loan interest due. The grace period is 61 days long and begins on the date we send notice to you. If you fail to pay the necessary premium within the grace period, all insurance, including benefits provided by rider, terminates. If the Insured dies during the grace period, we will pay the death benefit, less any due and unpaid Monthly Deductions and any loan interest due, to your beneficiary. We will not refund any cash value remaining in the Policy at the beginning of the grace period during the grace period or at lapse. 15 GUARANTEED DEATH BENEFIT You have the option to pay planned periodic premium payments based on the Annual Target Premium Payment specified in your Policy. If on any Monthly Anniversary during your first five (5) Policy Years the total premium you have paid, less any partial surrenders, is equal to or greater than the Annual Target Premium Payment specified in your Policy, adjusted to reflect the number of Monthly Anniversaries that have occurred since the Policy's Effective Date, then we guarantee that your Policy will not lapse, even if the cash surrender value is insufficient to pay for the Monthly Deduction and any loan interest then due. The guarantee death benefit is only available during the first five (5) Policy Years. To illustrate how the guaranteed death benefit works, let's assume your Annual Target Premium Payment is $2,000. If you have paid an amount equal to three and a half Annual Target Premium Payments or $7,000, your Policy will not lapse, during the first three and a half Policy Years, even if your cash surrender value on any Monthly Anniversary during that period is insufficient to pay your Monthly Deduction and any loan interest then due. The same would be true on any Monthly Anniversary thereafter, until the fifth Policy Year, provided you have met the then applicable Annual Target Premium Payment requirements. Conversely, if you have not met the applicable Annual Target Premium Payment requirements on any Monthly Anniversary, the guaranteed death benefit would not apply and your Policy would lapse if your cash surrender value is insufficient to pay your Monthly Deduction and any loan interest then due. If you change your Policy's Specified Amount within the first five (5) Policy Years, we will declare a new Annual Target Premium Payment and use it to determine whether the Guaranteed Death Benefit applies. REINSTATEMENT You may reinstate a lapsed Policy within five (5) years from the date of lapse and before the Policy's maturity date. We will require the following for reinstatement: 1. A completed application for reinstatement; 2. Proof of insurability satisfactory to USAA Life; 3. Payment of premium sufficient to pay the estimated Monthly Deductions for at least the three (3) Policy months beginning with the effective date of reinstatement; and 4. Payment of, or agreement to reinstate, any Policy Indebtedness. The effective date of the reinstated Policy will be the Monthly Anniversary on or before approval date of reinstatement. 16 Upon reinstatement, we will reinstate your Policy's death benefit to the Specified Amount in effect at lapse, less, if applicable, any reinstated Indebtedness. Your Policy's initial reinstated cash value will be the net reinstated premium less the Monthly Deduction for the month following the effective date of the reinstatement plus, if applicable, any reinstated Indebtedness plus any interest earnings credited to the loan collateral held in the general account. You will not receive any past performance during the grace period. One advantage of reinstating a lapsed Policy is that the first-year-only administrative charge will not be repeated if it has already been paid. A possible disadvantage of reinstatement is that any Policy Indebtedness must be paid or reinstated. CHARGES AND DEDUCTIONS PREMIUM CHARGE We deduct a 3% premium charge from each premium we receive to compensate us for sales charges and taxes. The resulting Net Premium Payment is the amount we allocate to the Variable Fund Accounts that you select. We will deduct the premium charge from all of your premium payments until the gross amount of premium payments we receive exceeds the sum of the Annual Target Premium Payments payable over 10 years. If you increase or decrease the Specified Amount, we will calculate a new Annual Target Premium Payment for you and use it to and determine whether the premium charge applies. To illustrate how this charge works, if your Annual Target Premium Payment is $2,000, we would no longer deduct the premium charge once you have paid in premiums of $20,000 ($2,000 per Policy Year for 10 years). MONTHLY DEDUCTIONS On your Policy's Effective Date, and each Monthly Anniversary thereafter, we will deduct certain monthly charges from your Policy's cash value. SEE "Deduction of Charges." The Monthly Deduction will include your cost of insurance charges, charges for any optional insurance benefits provided by rider, an administrative charge, and a maintenance charge, as described below. COST OF INSURANCE CHARGES. Your monthly cost of insurance charges will depend on a number of variables, including the Specified Amount of insurance coverage and death benefit option you select (both of which affect the net amount at risk to us), your cost of insurance RATE (which is based on the Insured's age, sex, and rate class), and the investment experience of your cash value in the Variable Fund Accounts. For more information on how we determine your cost of insurance charges, SEE "Calculating Your Cost of Insurance." 17 CHARGES FOR OPTIONAL INSURANCE BENEFITS. The Monthly Deduction will include charges for any optional insurance benefits added to the Policy by rider. SEE "Optional Insurance Benefits." ADMINISTRATIVE CHARGE (FIRST POLICY YEAR ONLY). During your first twelve Policy months only, we will deduct a monthly administrative charge of $10. This charge compensates us for start-up administrative expenses that we incur in issuing your Policy. These expenses include, for example, the cost of processing your application, conducting a medical examination, determining insurability and rate class, and establishing Policy records. The investment advisers or other affiliates of certain Mutual Funds reimburse USAA Life for the cost of administrative services provided to the Funds as investment options under the Policies. Compensation is paid out of fee earnings, based on a percentage of a Fund's average net assets attributable to a Policy. RECURRING MAINTENANCE CHARGE. The Monthly Deduction will include a recurring maintenance charge of $5. This charge compensates us for the recurring administrative expenses related to the maintenance of your Policy and of the Separate Account. These expenses include, for example, premium notices and collection, recordkeeping, processing death benefit claims, Policy changes, reporting, and overhead costs. This charge is guaranteed not to increase during the life of the Policy. SEPARATE ACCOUNT CHARGES We deduct certain charges on a daily basis as a percentage of the value of each Variable Fund Account of the Separate Account. These charges have the affect of reducing your Policy's cash value. MORTALITY AND EXPENSE CHARGE. We assess a daily charge of .00204% (equal to 0.75% annual rate) against the values of each Variable Fund Account for mortality and expense risks that we assume under the Policies. We guarantee that this charge will not increase during the life of your Policy. The mortality risk that we assume is that Insureds may live for a shorter period of time than we estimate and, thus a greater amount of death benefits than expected will be payable. The expense risk we assume is that expenses incurred in issuing and administering the Policies will be greater than we estimate. FEDERAL INCOME TAX CHARGE. Currently, we make no charge against the Separate Account for federal income taxes that may be attributable to the Separate Account. We may, however, make such a charge in the future, should it be necessary. We also may make charges for other taxes, if any, attributable to the Separate Account. SEE "Tax Matters." TRANSFER CHARGES We assess a $25 charge for each cash value transfer between Variable Fund Accounts in excess of six (6) per Policy Year. SEE "Transfers of Cash Value" and "Deduction of Charges." 18 SURRENDER CHARGES PARTIAL SURRENDER CHARGE. For each partial surrender of cash value, we assess a charge equal to the lesser of $25 or 2% of the amount withdrawn. SEE "Surrenders" and "Deduction of Charges." FULL SURRENDER CHARGE. For full surrenders prior to the end of the 10th Policy Year, we assess the surrender charge described below. The purpose of the surrender charge is to compensate us for the expenses we incur in distributing the Policies. The amount of the surrender charge will equal a percentage of the Annual Target Premium Payment specified in your Policy, regardless of the amount of premiums you actually pay. SEE "Annual Target Premium Payment." The applicable percentage depends on when you surrender. As shown in the table below, the applicable percentage declines each Policy Year to 0% after the 10th Policy Year. SURRENDER CHARGE AS A % OF ANNUAL TARGET PREMIUM PAYMENT Policy Year 1 2 3 4 5 6 7 8 9 10 11+ Applicable % 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0%
To illustrate how the surrender charge works, if your Annual Target Premium Payment is $2,000 and you surrendered your Policy in full during the first Policy Year, the surrender charge would be determined by multiplying 50% times $2,000 = $1,000. Thus, in this example the surrender charge would be $1,000. If you increase or decrease your Policy's Specified Amount within the first 10 Policy Years, we will declare a new Annual Target Premium Payment for you, which we will use to determine the surrender charge. OTHER CHARGES The Variable Fund Accounts purchase shares of the Funds at the net asset value of the shares. The net asset value reflects the investment management fees and other expenses already deducted from each Fund's assets. These fees and other expenses appear under "The Policy At a Glance." Please refer to the accompanying prospectuses for the Funds for more information on these fees and expenses. DEDUCTION OF CHARGES Unless you direct otherwise, we will deduct the Monthly Deduction, any partial surrender charge, and any transfer charge from your cash value in each Variable Fund Account in proportion to the amount you have invested in each 19 Account. You may, at any time, change how we deduct your charges by submitting a Notice to Us. DEATH BENEFIT The Policy offers two death benefit options, Option A and Option B, which you select on your Policy application. If you select OPTION A, your death benefit will be the greater of (i) your Policy's Specified Amount or (ii) the Minimum Amount Insured (which is a specified percentage of your cash value based on the Insured's age). SEE "Minimum Amount Insured." If you select OPTION B, your death benefit will be the greater of (i) your Policy's Specified Amount PLUS your cash value or (ii) the Minimum Amount Insured. SEE "Minimum Amount Insured." Under either option, we will reduce the amount of death benefit we pay by the amount of any outstanding Indebtedness and any due and unpaid Monthly Deductions. SEE "Payment of Policy Benefits." Please note that partial surrenders and related surrender charges also will reduce the amount of your death benefit. SEE "Changing Your Policy's Specified Amount." CHOOSING BETWEEN OPTION A AND OPTION B. Both Option A and Option B provide insurance protection and the opportunity to build your cash value. When choosing between Option A and Option B, one way to differentiate the two may be to think of Option A as emphasizing potential cash value growth and Option B as emphasizing potential death benefit growth, as explained below. Under Option A, any cash value you build will decrease the net amount at risk to us relative to the amount of death benefit we must pay if the Insured dies. As a result, all other things being equal, your cost of insurance charges generally will be lower under Option A than under Option B for the same Specified Amount. With lower monthly cost of insurance charges, more of your cash value can remain invested in the Variable Fund Accounts, thereby enabling you to build potential cash value faster than you could if you were paying the higher charges under Option B. There is, however, no minimum guaranteed cash value, which means you bear the entire investment risk that your cash value could fall to zero. SEE "Cash Values." Under Option B, unlike Option A, any cash value you build will increase the amount of your death benefit. As a result, all other things being equal, your death benefit under Option B generally will be greater than your death benefit under Option A for the same Specified Amount. 20 ILLUSTRATIONS OF OPTION A AND OPTION B To illustrate the differences between Option A and Option B, let's assume that the Insured is less than 40 years old, that your Policy's Specified Amount is $100,000, that you have no loan or outstanding Monthly Deductions, and that your Policy cash value is $25,000. Under Option A, your death benefit would be the greater of $100,000 and the Minimum Amount Insured. Under Option B, your death benefit would be the greater of $125,000 ($100,000 plus $25,000) and the Minimum Amount Insured. Under both Options, the death benefit would be higher than the Minimum Amount Insured, which would be $62,500, in this example. (The Minimum Amount Insured is calculated by multiplying the cash value by a specific percentage prescribed by the Internal Revenue Code. In this example, the prescribed percentage would be 250%. Different percentages apply at different ages, and generally decline as you get older. SEE "Minimum Amount Insured.") Now let's assume that instead of $25,000 your cash value is $50,000. The Minimum Insured Amount would be $125,000 (250% times $50,000). Under Option A, your Minimum Insured Amount would be greater than the Specified Amount. As a result, your death benefit would be $125,000. On the other hand, under Option B, your death benefit ($150,000) would be higher than the Minimum Amount Insured ($125,000). CHANGING YOUR DEATH BENEFIT OPTION After the death benefit option you selected on your Application has been in effect for one Policy Year, you may change it by sending Notice to Us. The new death benefit option also must remain in effect for one Policy Year before we will allow another change. There is no charge or fee for changing the death benefit option. The change will become effective on the Monthly Anniversary on or following the date we approve the change. If you change your death benefit from Option A to Option B, your Policy's new Specified Amount will be the old Specified Amount DECREASED by your Policy's cash value (excluding the amount of any outstanding Indebtedness) next determined on the Date of Receipt of your Notice to Us. We will not allow this change if it would result in a Specified Amount that is less than the minimum Specified Amount of $50,000 ($25,000 for Insureds less than 18 years of age). Changing from Option A to Option B will require proof of insurability, if you wish your Policy's new Specified Amount under Option B to be the same as the old Specified Amount under Option A. If you change your death benefit option from Option B to Option A, your Policy's new Specified Amount will be the old Specified Amount INCREASED by your Policy's cash value (excluding the amount of any outstanding Indebtedness) next determined on the Date of Receipt of your Notice to Us. Changing from Option B to Option A does not require proof of insurability, unless you make changes in your Policy's Specified Amount or elect optional benefits available by rider. 21 A change in death benefit option will affect your cost of insurance. SEE "Calculating Your Cost of Insurance." We will recalculate the maximum premium limitation following a change in death benefit option. SEE "Minimum Amount Insured" under "Calculating Your Cost of Insurance." CHANGING YOUR POLICY'S SPECIFIED AMOUNT Within certain limits, you may increase or reduce your Policy's Specified Amount. A change in Specified Amount may increase or decrease your cost of insurance charges. SEE "Calculating Your Cost of Insurance." A change in the Specified Amount also may have tax consequences. SEE "Tax Matters." Changes in Specified Amount do not necessarily require changes in planned periodic premiums. SEE "Planned Periodic Premium Payments." We will recalculate the maximum premium limitations following an increase or decrease in Specified Amount. SEE "Premium Payments" and "Tax Matters." The minimum amount by which you can increase your Policy's Specified Amount is $25,000. You must apply in writing and we will require satisfactory proof of insurability. The change will become effective on the Monthly Anniversary on or following the date we approve the increase. Your rights to cancel your Policy do not apply to increases in Specified Amount. We will not allow a reduction (other than that resulting from a partial surrender of cash value under Option A) that results in a Specified Amount that is less than $50,000 ($25,000 if the Insured is less than 18 years of age), nor will we allow a reduction that would cause your Policy not to qualify as life insurance for federal tax law purposes. Requests for reduction must be in writing. For purposes of determining your cost of insurance charge, we will apply any reduction to any increases in the Specified Amount in the reverse order in which they occurred. The change will become effective on the Monthly Anniversary on or following the Date of Receipt of your request. Partial surrenders will reduce your Policy's death benefit on a dollar for dollar basis unless the death benefit is the Minimum Amount Insured, in which case your death benefit will be reduced by a multiple of the amount surrendered. Under death benefit Option A, the Specified Amount and the cash value will be reduced by the amount of the partial surrender. Under death benefit Option B, only the cash value portion of the death benefit will be reduced by the amount of the partial surrender. OTHER POLICY BENEFITS OPTIONAL INSURANCE BENEFITS Subject to certain underwriting or issue requirements, you may add one or more of the following optional insurance benefits to your Policy by rider. The rider's description in this Prospectus is subject to the specific terms of 22 the rider as each contains definitions, contractual limitations, and conditions. We will deduct the cost of any optional insurance benefits as part of the Monthly Deduction. SEE "Monthly Deductions." ACCELERATED BENEFITS FOR TERMINAL ILLNESS RIDER. This rider provides for an early benefit payment to you upon receipt of proof that the Insured is terminally ill (as defined in the rider). The rider is not available in all states. The maximum amount you may receive under the rider prior to the Insured's death is 50% of the then current death benefit payable under the Policy (excluding any rider benefits and reduced by any Indebtedness) or, if less, $250,000 under all life insurance policies that we and our affiliates have issued on the Insured. We will deduct the amount of any Indebtedness from the amount of the early payment. The early payment, plus interest on the payment, and any unpaid Monthly Deductions will become a "lien" against all future Policy benefits. We will continue to charge interest on the early payment until the Insured's death. If at any time the amount of the lien, plus any Indebtedness, exceeds your Policy's then current death benefit, the Policy will terminate without further value. The cash surrender value of the Policy also will be reduced by the amount of the lien. ACCIDENTAL DEATH BENEFIT RIDER. This rider provides an additional life insurance benefit if the Insured's death results from accidental bodily injury (as defined in the rider). CHILDREN TERM LIFE INSURANCE RIDER. This rider provides level term life insurance on the lives of the Insured's children (as defined in the rider). EXTENDED MATURITY DATE RIDER. This rider permits you to extend your Policy's maturity date beyond what it otherwise would be (I.E., the Monthly Anniversary following the Insured's 100th birthday). The death benefit during the extended maturity period will be your Policy's cash value less any Indebtedness. Cost of insurance charges do not apply during this period, though we will assess a maintenance charge. Extension of the maturity date is subject to all of the terms and conditions of the Policy, except where they are inconsistent with the rider. Extending the maturity date of your Policy beyond the Insured's age 100 may result in the current taxation of any increases in your Policy's cash value that result from investment experience in the Variable Fund Accounts. You should consult a qualified tax adviser before making such an extension. WAIVER OF MONTHLY DEDUCTION RIDER. This rider waives your Monthly Deduction during periods of total and permanent disability of the Insured, but only if the Insured has been totally and permanently disabled (as defined in the rider) for at least six consecutive months. We will not deduct the amount of any Monthly Deduction waived under this rider from the cash value proceeds payable upon maturity of your Policy, or the death benefit proceeds payable if the Insured dies before the Policy matures. If Option A is in effect when we approve a claim under the rider, we will change your death benefit option from Option A to Option B as of the Monthly Anniversary after the disability began. While we are paying benefits under the rider, you may not increase your Policy's Specified Amount. Please note that the rider does not apply to interest under your Policy loans. As a result, it is possible that your Policy could lapse for nonpayment of loan interest. 23 If you would like further information about the optional insurance benefits available under your Policy, please contact us at 1-800-531-8000. Please note that adding or deleting riders, or increasing or decreasing coverage under the riders, can have tax consequences. SEE "Tax Matters." You should consult a qualified tax adviser. BENEFITS AT MATURITY If the Insured is living, we will pay the cash value of your Policy, less any Indebtedness, when your Policy matures. All Policies will mature on the Monthly Anniversary following the Insured's 100th birthday unless extended by rider. PAYMENT OF POLICY BENEFITS PAYMENT OF DEATH BENEFIT As long as your Policy has not terminated due to lapse, maturity, or full surrender, we will pay your Policy's death benefit to your beneficiary. We will usually pay the death benefit within seven (7) days after we receive Proof of Death and all other appropriate requirements necessary to make payment are met. We will determine the cash value portion of the death benefit as of the Valuation Date immediately following the date of death. We will pay the death benefit upon receipt of Proof of Death in cash or under one or more of the payment options you have selected in advance. If you have not selected a payment option, your beneficiary may select the payment option prior to the Insured's death. We may postpone payment of the death benefit in certain circumstances. SEE "Postponement of Payments." PAYMENT OF MATURITY BENEFIT If your Policy matures before the Insured dies, we will normally pay you the cash value of your Policy within seven days after the Valuation Date on which the Policy matures. We may postpone payments in certain circumstances. SEE "Postponement of Payments." We will reduce the cash value by any Indebtedness and any due and unpaid Monthly Deductions. These proceeds will be increased by any applicable additional optional insurance death benefits provided by rider and will also include interest accrued from the date of death to the payment date. DEATH BENEFIT PAYMENT OPTIONS We will pay the death benefit in a lump sum or under one of the payment options below. During the Insured's lifetime, you may select a payment option. If the Insured dies and you have not chosen a payment option, your beneficiary can choose a payment option. If you have selected a payment option before the Insured's death, your beneficiary may not change that option after the 24 Insured's death. Proceeds applied under a payment option will no longer vary by the investment experience of the Variable Fund Accounts. The nature and timing of your choice of payment option can effect the tax consequences to you or your beneficiary. You should consult your tax adviser. INTEREST ONLY OPTION. The Policy's principal amount may be left on deposit with USAA Life for a mutually determined fixed period, not to exceed 30 years. We will make interest payments at mutually determined regular intervals. The principal amount will earn interest at a minimum rate of 3% compounded annually. At the end of the fixed period, we will pay the principal amount as agreed. INSTALLMENTS FOR A FIXED PERIOD OPTION. Under this option, we will pay the principal amount plus interest in equal or unequal installments, as mutually agreed upon, for a specified number of years (not more than 30), as mutually agreed upon. The amount of the installments will not be less than that shown in the Table of Guaranteed Payments contained in your Policy. INSTALLMENTS OF A FIXED AMOUNT OPTION. Under this option, we will pay the principal amount plus interest in equal or unequal installments, as mutually agreed upon, until the amount applied, together with interest on the unpaid balance, is paid in full. OTHER OPTIONS. We will apply the sum under any other option mutually agreed upon. Any arrangements involving more than one payment option, or involving a Beneficiary that is not a natural person (E.G, a corporation) or who is a fiduciary (e.g., a trustee) are subject to our approval. In addition, the details of the arrangements are subject to our rules in effect at the time the arrangements take effect. CASH VALUE Your Policy's cash value will vary on a daily basis with the investment experience of the Variable Fund Accounts to which you have allocated your Net Premium Payments. Your Policy's cash value also will vary to reflect various Policy transactions, such as additional premium payments, partial surrenders, and Policy loans, and to reflect applicable charges and deductions. YOUR POLICY DOES NOT PROVIDE A MINIMUM GUARANTEED CASH VALUE, WHICH MEANS YOU BEAR THE ENTIRE INVESTMENT RISK THAT YOUR CASH VALUE COULD FALL TO ZERO. On your Policy's Effective Date, your cash value will equal your Net Premium Payments, less the Monthly Deduction for the following Policy month. Thereafter, your cash value on any Valuation Date will equal the sum of your Policy's cash values invested the Variable Fund Accounts plus, if applicable, any cash values transferred from the Separate Account to our general account to secure any Policy loan, plus any interest earnings credited to the loan account values, less the amount of any outstanding Indebtedness, and less any Monthly Deductions, transfer charges, and partial surrender charges applied through that date. SEE "Loans." 25 CALCULATING YOUR CASH VALUE IN THE VARIABLE FUND ACCOUNTS When you invest in a Variable Fund Account, you are purchasing units of interest or "Accumulation Units" ("units") of that Account. You purchase units at their price next determined on any given Valuation Date following the receipt of your payment. Therefore, on any given Valuation Date, you can calculate the value of your investment in a Variable Fund Account by multiplying the number of units of each Variable Fund Account credited to your Policy by the price of the units on that Date. We determine the number of units to credit to you by dividing (i) the Net Premium Payments you allocate to a Variable Fund Account by (ii) that Variable Fund Account's price per unit or "unit value" on the Valuation Date we receive your payment. Certain transactions will affect the number of units in a Variable Fund Account credited to you. Net Premium Payments will increase the number of full or fractional units. Loans, partial or full surrenders, surrender fees, transfer charges, and Monthly Deductions involve redemption of full or fractional units and will decrease the number of units. In addition, transfers of cash value among Variable Fund Accounts will decrease the number of units in the Variable Fund Accounts from which cash value is transferred and increase the number of units in the Variable Fund Accounts to which cash value is transferred. Each Variable Fund Account's units are valued separately. Initially, the unit value of all units in each Variable Fund Account was set at the prices shown in the table below. Variable Fund Account Unit Value as of May 1, 1998 --------------------- ---------------------------- USAA Life Money Market USAA Life Income USAA Life Growth And Income USAA Life World Growth USAA Life Diversified Assets USAA Life Aggressive Growth USAA Life International Alger American Growth Scudder VLIF Capital Growth BT Equity Index BT Smallcap Index BT EAFE(R) Equity Index
Thereafter, the unit value of a Variable Fund Account on any Valuation Date is calculated by adjusting the unit value from the previous Valuation Date for: (1) the investment performance of the corresponding Fund, (2) any dividends or distributions paid by that Fund, (3) the Separate Account charges that we assess (SEE "Separate Account Charges"). 26 To find out daily what your cash value is, including the value and number of units of each Variable Fund Account credited to your Policy, please call us at 1-800-531-8000. TRANSFER OF CASH VALUE Except during the first 30 days after your Policy becomes effective, you may transfer all or part of the cash value in any Variable Fund Account to any other Variable Fund Account of the Separate Account, up to six (6) times per Policy Year, without charge. Each transfer thereafter is subject to a $25 charge. The minimum amount you can transfer from any Variable Fund Account is $250 (or the remaining cash value in the Variable Fund Account value if less). A transfer will result in the redemption or purchase (or both) of units of the Variable Fund Accounts involved. You may request a transfer by telephone or by Notice to Us. We will effect the transfer using the Variable Fund Account unit values next computed following the Date of Receipt of your request, unless a postponement of payments is in effect. SEE "Postponement of Payments." We reserve the right, at any time, to terminate, suspend, or modify these transfer privileges. LOANS After your first Policy Year, you may borrow money from USAA Life by using your Policy as the sole security for the loan. The amount that you may borrow is the "loan value." The maximum loan value is 85% of your cash surrender value. You may request a loan by telephone or by Notice to Us, but you must obtain the written consent of all assignees and irrevocable beneficiaries, if any, before we can make the loan. We will usually pay you the loan proceeds within seven (7) days after the Date of Receipt of your loan request, unless a postponement of payments is in effect. SEE "Postponement of Payments." LOAN COLLATERAL When you take a loan, we will transfer an amount equal to the loan from your cash value in the Variable Fund Accounts to our general account. We make this transfer of "loan collateral" to secure your loan. You may specify the Variable Fund Accounts from which you want us to withdraw the loan collateral. If you do not so specify, we will withdraw the loan collateral from the Variable Fund Account in proportion to the amount you have invested in each Account. While a loan is outstanding, we will credit the loan collateral on a daily basis with interest at an effective annual rate of 4%. 27 LOAN INTEREST We will charge you interest on your loan at a maximum annual rate of 6% payable in advance. We have the option of charging less. For Policies that have been in effect more than 10 Policy Years and if the Insured is age 55 or older, we charge interest at a maximum annual "preferred loan" rate of 4.5% payable in advance. We have the option of charging less for a preferred loan. The entire amount of interest on your loan balance for each Policy Year is payable in advance at the commencement of the loan and at the beginning of each Policy Year thereafter. We will automatically deduct the interest from the Variable Fund Accounts in the same proportion as the loan amount was withdrawn from the Accounts. If you have insufficient cash value in the Variable Fund Accounts to pay the interest, we will add the amount of any unpaid interest to your loan principal, and subject it to the same rate of interest as the principal. Because interest is paid in advance, loan repayments during a Policy Year may result in an overpayment of interest. We will credit any overpayment of interest to you on the date of any loan repayment. REPAYMENT OF INDEBTEDNESS You may repay your Indebtedness (I.E., loans and any unpaid interest) in full or in part at any time before the Insured's death and while the Policy is in effect. If not repaid, we will deduct the Indebtedness from any death benefit, maturity benefit, or surrender payable under the Policy. You must designate any loan repayment as such. Otherwise, we will treat it as a premium payment instead. You may direct how you want your loan repayment to be allocated among the Variable Fund Accounts. If you do not specify an allocation, we will allocate your loan repayment to the Variable Fund Accounts in the same proportion as each Account's value has to the total cash surrender value of your Policy. EFFECT OF POLICY LOANS A loan will reduce the cash value of the Variable Fund Accounts from which it is deducted. Thus, the amount loaned will not share in the investment experience of the Variable Fund Accounts. Therefore, a loan, whether repaid or not, will have a permanent effect on the cash value of the Policy. Loan values will be determined as of the Date of Receipt of the loan request. For situations where a Policy loan may be treated as a taxable distribution, SEE "Tax Matters." SURRENDERS You may fully or partially surrender your Policy for all or part of its cash value to the extent described below. We will determine the cash value of the surrendered amount as of the Date of Receipt of your request for 28 surrender. There may be tax consequences in connection with a full or partial surrender. See "Tax Matters." You must obtain the written consent of all assignees or irrevocable beneficiaries, if any, before we will process any request for surrender. We will effect any surrenders using the Variable Fund Account unit values next computed following the Date of Receipt of your Notice to Us or, in the cash of partial surrenders, your telephone request. In certain circumstances, we may postpone the payment of surrenders. SEE "Postponement of Payments." FULL SURRENDERS At any time before the Insured's death and while the Policy is still in effect, you may surrender your Policy for its entire cash surrender value by sending Notice to us. We may require the return of the Policy. We also may assess a surrender charge. SEE "Surrender Charges." We sometimes refer to the net amount you would receive as the Policy's "cash surrender value." Your Policy and all insurance will terminate on the Date of Receipt of your Notice to Us. PARTIAL SURRENDERS After your first Policy Year and while your Policy is still in effect, but before the Insured's death, you may surrender a portion of your Policy for cash. You may direct how you would like us to withdraw a partial surrender from your cash value in the Variable Fund Accounts. If you do not specify a withdrawal allocation, we will withdraw the partial surrender from the Variable Fund Accounts in the same proportion as your cash value in each Account. We will assess an administrative processing fee equal to the lesser of $25 or 2% of the amount withdrawn. SEE "Surrender Charges" and "Deductions for Charges." You may request a partial surrender by telephone or by Notice to Us. Partial surrenders and related surrender charges will reduce your death benefit. SEE "Changing Your Policy's Specified Amount" under "Death Benefit." TELEPHONE TRANSACTIONS You may submit requests to change your premium payment allocation, requests for partial surrenders, requests for loans, and requests for transfers of cash value among Variable Fund Accounts made by telephone. We will employ reasonable procedures to confirm that instructions communicated by telephone are genuine, and only if we do not, will we be liable for any losses because of unauthorized or fraudulent instructions. We will obtain information prior to any discussion regarding your Policy including, but not limited to: (i) your USAA number or Policy number, (ii) your name, and (iii) your social security number. In addition, we will record all telephone communications with you and will send confirmations of all transactions to your address. Your Policy automatically authorizes you to make telephone transactions, subject to our right to modify, suspend, or discontinue this telephone transaction 29 privilege at any time without prior notice. FREE LOOK RIGHT You may cancel your Policy within 10 days after receiving it, or such longer period as state law may require by returning the Policy to us along with a written request for cancellation. Upon its return, we will refund the greater of your premium payments or the value of the Variable Fund Accounts as of the Date of Receipt of your written request to cancel, plus any premium charge, Monthly Deduction, and mortality and expense charge that we deducted. POSTPONEMENT OF PAYMENTS We may postpone payments of partial surrenders, full surrenders, Policy loans, maturity benefits, death benefits, and Variable Fund Account transfers beyond seven (7) days whenever: 1. the New York Stock Exchange is closed, 2. the SEC, by order, permits postponement for the protection of Policy Owners, or 3. the SEC requires trading to be restricted or declares an emergency. We reserve the right to defer payment of any partial and full surrender or Policy loans that would be derived from a premium payment made by a check that has not cleared the banking system. MORE POLICY INFORMATION OWNERS AND BENEFICIARIES OWNERS If you are the Owner of the Policy, the rights and privileges of the Policy during the lifetime of the Insured belong to you. Generally, the Owner is also the Insured, unless a different Owner is designated in the application or at a later date. SUCCESSOR OWNER. As Owner, you may designate a successor Owner. If you die without designating a successor Owner, ownership of the Policy will pass to your estate. CHANGE OF OWNERSHIP. As Owner, you may change ownership of your Policy, at any time, during the Insured's lifetime, by submitting Notice to Us. After we receive your Notice to Us, the change will take effect on the Date of Receipt of the request. A change of ownership is subject to the rights of an assignee of record and those of any irrevocable beneficiary. We are not be responsible for any payments made or actions taken before we receive your Written Request. 30 COLLATERAL ASSIGNMENT. As Owner, you may assign the Policy as collateral security by submitting a Notice to Us. You will need to obtain the written consent of any irrevocable beneficiaries and assignees of record before we recognize any assignment; however, a collateral assignment takes precedence over the interest of a revocable beneficiary. The assignment will take effect as of the date we receive your Notice to Us. We are not responsible for the validity or effect of any collateral assignment, nor are we responsible for any payment or other action taken before we receive the Written Request. We are not bound by an assignment until we receive it at our Home Office. We will pay any death benefit payable to an assignee in one lump sum. We will pay any remaining proceeds to the designated beneficiary or beneficiaries. A collateral assignee is not an Owner. A collateral assignment is not a transfer of ownership, unless it is an absolute assignment. All collateral assignees of record must consent to any full surrender, partial surrender, loan or payment from a Policy under an Accelerated Benefits Rider for Terminal Illness. There may be unfavorable tax consequences, including recognition of taxable income and the loss of income tax-free treatment for any death benefit payable to the beneficiary. Therefore, you should consult a qualified tax adviser prior to making an assignment. BENEFICIARIES You may name one or more beneficiaries in your Policy application. You may classify beneficiaries as primary, contingent, revocable, or irrevocable. If no primary beneficiary survives the Insured, we will pay the Policy proceeds to the contingent beneficiaries. Beneficiaries in the same class will receive equal payments unless you direct otherwise. A beneficiary must survive the Insured in order to receive his or her share of the death benefit proceeds. If a beneficiary dies before the Insured dies, his or her unpaid share is divided among the remaining beneficiaries of the same class who survive the Insured. If no beneficiary survives the Insured, we will pay the proceeds to you, if you are alive, or, if not, to your estate. CHANGE OF BENEFICIARY. You may change the beneficiary while the Insured is living, by submitting a Notice to Us. You must obtain the written consent of any irrevocable beneficiaries before we will accept any change in beneficiary. After we receive Notice to Us, the change in it will take effect as of the Date of Receipt of your Notice. We will not be responsible for any payment or other action taken before receipt of the change request. If we make a payment of death benefits in good faith before receiving the Notice, we will receive credit for the payment against our liability under the Policy. We may require you to return the Policy for endorsement of the beneficiary change. A change of Beneficiary is subject to the rights of an assignee of record. 31 CALCULATING YOUR COST OF INSURANCE For each Monthly Anniversary, we determine your monthly cost of insurance by multiplying (i) the net amount at risk under your Policy by (ii) your cost of insurance rate. NET AMOUNT AT RISK We determine the net amount at risk by subtracting your Policy's cash value on any Monthly Anniversary from your Policy's current death benefit (divided by a factor that discounts the Death Benefit to the beginning of the month). Your Policy's death benefit may be the death benefit required to qualify the Policy as life insurance. SEE "Minimum Amount Insured." The net amount at risk may be greater if you have selected death benefit Option B rather than death benefit Option A. SEE "Death Benefits." Since the death benefit payable under Option B is the Specified Amount plus the cash value, the difference between the death benefit and the cash value will be greater under Option B than under Option A (unless the Minimum Amount Insured applies). As the net amount at risk will be greater, so the cost of insurance also will be greater. The net amount at risk also may be affected by changes in your Policy's cash value or in the Specified Amount. SEE "Cash Value" and "Death Benefits." The net amount at risk for each Policy continues to be determined generally by subtracting the Policy's cash value from the Policy's death benefit (discounted for one month's interest), regardless of whether the death benefit is the Policy's current Specified Amount or the Minimum Amount Insured. The cost of insurance rate applied against the net amount at risk will continue to increase as the Insured's age increases. NET AMOUNT AT RISK - MORE THAN ONE RATE CLASS If you increase the Specified Amount and the rate class applicable to the increase is different from that of the initial Specified Amount, then, in determining the cost of insurance charge, the net amount at risk will be calculated separately for each rate class. The method of determining the net amount at risk for each rate class will differ between Option A and Option B. If Option A is in effect, the cash value will be apportioned among the initial Specified Amount and any increases in Specified Amount. The cash value will first be considered a part of the initial Specified Amount. If the cash value is greater than the initial Specified Amount, the balance of the cash value will then be considered a part of each increase in Specified Amount, beginning with the first increase. If Option B is in effect, the net amount at risk will be determined by the proportional relationship of the initial Specified Amount and the Specified Amount increases for each new rate class to the total Specified Amount. Because the method of calculating the net amount at risk is different between Option A and Option B when more than one rate class is in effect, a change in the death benefit option may result in a different net amount at risk for each rate class than would have occurred had the death benefit option 32 not been changed. Thus, the total cost of insurance will be increased or decreased. COST OF INSURANCE RATES Your cost of insurance rates are based on your Insured's age, sex, and rate class. Generally, we set cost of insurance rates based on our expectations as to future mortality experience. We apply any changes to cost of insurance rates to all persons of the same age, sex, and rate class. We will give you 30 days' notice before any increase in your current cost of insurance rates becomes effective. We guarantee that your cost of insurance rates will never be greater than the maximum cost of insurance rates shown in your Policy. These guaranteed rates are based on the 1980 Commissioners Standard Ordinary Mortality Table, age on the Insured's last birthday. The rate class of your Insured will affect your cost of insurance rate. USAA Life currently places Insureds into one of three preferred rate classes or into one of two standard rate classes involving higher mortality risks. In an otherwise identical Policy, Insureds in the preferred rate class will have a lower cost of insurance rate than those in a standard rate class. We make all final determinations of an Insured's rate class. MINIMUM AMOUNT INSURED If higher than the death benefit under Option A or Option B, we will pay you the Minimum Amount Insured. The Minimum Amount Insured is the amount of insurance proceeds that the Internal Revenue Code requires for your Policy to qualify as life insurance and to exclude the death benefit from your beneficiary's gross income. You can determine the Minimum Amount Insured by multiplying your Policy's cash value (excluding the amount of any outstanding loan and any unpaid loan interest) by a specified percentage based on the Insured's age. The specified percentages, which generally decline as the Insured gets older, are: MINIMUM INSURED AMOUNT AS A PERCENTAGE OF CASH VALUE INSURED'S 40 or AGE* Under 45 50 55 60 65 70 75 to 95 100 PERCENTAGE 250% 215% 185% 150% 130% 120% 115% 105% 100% * Nearest birthday at the beginning of the Policy Year in which the Insured dies. A more complete table appears in your Policy.
If, prior to the Insured's death, unexpected increases in your Policy's cash value would cause your Policy not to satisfy Internal Revenue Code requirements, we may increase the death benefit to the Minimum Amount Insured so that the death benefit will be excluded from the beneficiary's taxable income. 33 THE CONTRACT The Policy is a legal contract between you and us. The consideration for issuing the Policy is: 1. completion of the application, and 2. payment of the first full premium. Your Policy, your Policy application, any supplemental applications, riders, endorsements, and amendments form the entire contract. We will consider statements in the application as representations and not warranties. We will not use any representation to void your Policy or defend a claim under your Policy unless it is contained in your written application or supplemental application. Only the president or secretary of USAA Life has authority to change or waive a provision of your Policy, and then only in writing. INCONTESTABILITY We will not contest a Policy, or any increase in Specified Amount, except for lapse or fraud, after the Policy or increase has been in effect during the Insured's lifetime for two years. Any increase in the Specified Amount will have its own two-year contestable period beginning with the Effective Date of the increase. During any two-year contestable period, we have the right to contest the validity of your Policy based on material misstatements made in the application or any supplemental application. The two-year contestable period begins on the Effective Date of your Policy, or, in the case of an increase, on the date the increase is approved and made effective. If your Policy is reinstated after lapse, it will have a two-year contestable period beginning with the date of reinstatement. This contestable period will apply only to statements made in the reinstatement application. The incontestability provisions do not apply to optional Policy benefits added by rider. Each rider contains its own incontestability provision. If we contest and rescind your Policy, you will receive your premiums paid, less any Indebtedness and any previous partial surrenders. MISSTATEMENT OF AGE OR SEX Age means the Insured's age on his or her last birthday. If the Insured's age or sex has been misstated on the application or any supplemental application, we will adjust the cash values and death benefits to those based on the correct Monthly Deductions since the Policy's Effective Date. 34 SUICIDE EXCLUSION Your Policy does not cover suicide by the Insured, while sane or insane, during the first two years after the Policy's Effective Date. If the Insured commits suicide during this period, our sole liability will be to refund all premiums paid, less Indebtedness and previous partial surrenders. We will not pay any death benefit in those circumstances. If your Policy lapses and is later reinstated, we will measure the two-year suicide exclusion period from the Effective Date of reinstatement. If you increase your Policy's Specified Amount, we will measure the two-year suicide exclusion period for the increase from the increase's Effective Date. If the Insured dies as a result of suicide (whether sane or insane) during the separate two-year suicide exclusion period, we will only pay the death benefit attributable to the initial Specified Amount (on which the two-year suicide exclusion period has expired). We will refund the premium payments less any Indebtedness and any partial surrenders attributable to the increase in the Specified Amount. NON-PARTICIPATING POLICY Your Policy is "non-participating," which means you will not share in any of our profits or surplus earnings. We will not pay dividends on your Policy. REPORTS AND RECORDS We will maintain all records relating to the Policy and the Separate Account. We will mail to you a Policy annual statement showing: (1) the amount of death benefit; (2) the cash value; (3) any Indebtedness; (4) any loan interest incurred since the last annual report; (5) any loan repayment since the last annual report; (6) any partial surrender since the last annual report; (7) all premium payments since the last annual report; (8) all deductions and charges since the last annual report; and, (9) other pertinent information required by any applicable law or regulation, or that we deem helpful to you. We will mail the statement within 30 days after the Policy's anniversary, or, at our discretion, within 30 days after the end of each calendar year showing information as of a date not more than 60 days prior to the mailing of the annual report. We also will send you periodic reports for the Funds that correspond to the Variable Fund Accounts, periodic reports for the Separate Account, and any other information, as required by state and federal law. 35 We will mail confirmation notices (or other appropriate notification) promptly at the time of the following transactions: (1) Policy issue; (2) receipt of premium payments; (3) transfers among Variable Fund Accounts; (4) change of premium allocation; (5) change of death benefit options; (6) increases or decreases in Specified Amount; (7) partial surrenders; (8) receipt of loan repayments; and, (9) reinstatement. PERFORMANCE INFORMATION From time to time, we may quote performance information for the Variable Fund Accounts of the Separate Account in advertisements, sales literature, or reports to Owners or prospective investors. We may quote performance information in any manner permitted under applicable law. We may, for example, present such information as a change in a hypothetical Owner's cash value or death benefit. We also may present the yield or total return of the Variable Fund Accounts based on a hypothetical investment in a Policy. The performance information shown may cover various periods of time, including periods beginning with the commencement of the operations of the Variable Fund Account or the Fund in which it invests. The performance information shown may reflect the deduction of only some of the applicable charges to the Policy. We may, for example, exclude the deduction of one or more charges, such as the premium charge or surrender charge, and we generally expect to exclude cost of insurance charges because of the individual nature of these charges. We may compare a Variable Fund Account's performance to that of other variable life separate accounts or investment products, as well as to generally accepted indices or analyses, such as those provided by research firms and rating services. In addition, we may use performance ratings that may be reported periodically in financial publications, such as MONEY MAGAZINE, FORBES, BUSINESS WEEK, FORTUNE, FINANCIAL PLANNING, and THE WALL STREET JOURNAL. We also may advertise ratings of USAA Life's financial strength or claims-paying ability as determined by firms that analyze and rate insurance companies and by nationally recognized statistical rating organizations. 36 Performance information for any Variable Fund Account reflects the performance of a hypothetical Policy and are not illustrative of how actual investment performance would affect the benefits under your Policy. Therefore, you should not consider such performance information to be an estimate or guarantee of future performance. OTHER INFORMATION USAA LIFE USAA Life is a stock insurance company incorporated in the State of Texas in June 1963. USAA Life is principally engaged in writing life insurance policies, health insurance policies, and annuity contracts. USAA Life is authorized to transact insurance business in all states of the United States (except New York) and the District of Columbia. USAA Life on a consolidated basis had total assets of $_____________ on December 31, 1997. USAA Life is a wholly-owned stock subsidiary of USAA. The commitments under the Policies are USAA Life's, and USAA has no legal obligation to back those commitments. USAA Life is the depositor administering the Separate Account. USAA Life's obligations as depositor of the Separate Account may not be transferred without notice to and consent of the Owners. USAA Life also issues variable annuity contracts through another separate account, which is also a registered investment company. In addition, USAA Life serves as transfer agent of the USAA Life Investment Trust. DIRECTORS OF USAA LIFE. USAA Life is managed by its Board of Directors, described below, all of whom are also officers of either USAA or USAA Life and have the same principal business address as USAA Life, as shown on the front cover page of this Prospectus.
Name Principal Occupation (Past Five Years) ---- ------------------------------------- Edwin L. Rosane Vice Chairman, Chief Executive Officer/President. Robert G. Davis Chairman since June 1997; prior thereto, Director since December 1996; Chief Executive Officer and President of USAA CAPCO since December 1996; prior thereto, Special Assistant to CEO, USAA, since June 1996; prior thereto, Chief Executive Officer and President of Bank One, Columbus, since 1991. 37 Bradford W. Rich Director, General Counsel & Secretary; Senior Vice President, USAA, since January 1996; prior thereto, Senior Vice President and Special Assistant to CEO, USAA, since December 1995; prior thereto, Executive Vice President and General Counsel, ACE Limited. Josue Robles, Jr. Director; Senior Vice President, Chief Financial Officer/Treasurer, USAA, since August 1995; prior thereto, Senior Vice President, Chief Financial Officer/Controller, USAA, since September 1994; prior thereto, Special Assistant to Chairman, USAA, since July 1994; prior thereto, Active Service with U.S. Army since 1966. Michael J.C. Roth Director; Chief Executive Officer and President, USAA IMCO, since October 1993 and January 1990, respectively. Janice E. Marshall Director since June 1997; President, USAA Buying Services, since March 1996, prior thereto, Senior Vice President, Central Region & Regional Services, USAA P&C, since November 1994, prior thereto, Regional Vice President, USAA P&C, since January 1993. William B. Tracy Director since June 1997; Senior Vice President, Human Resources, USAA, since June 1988. Donald R. Walker Director since June 1997; Chief Information Officer, USAA, and President & CEO, USAA ITCO, since January 1996; prior thereto, Special Assistant to Chairman, USAA, since November 1995; prior thereto, Active Duty with U.S. Air Force since 1966.
OFFICERS (OTHER THAN DIRECTORS). The senior officers of USAA Life, other than the Directors named above, and the officers responsible for variable life operations are described below. The principal business address of each person listed is same as the address of USAA Life, as shown on the cover page of this Prospectus.
Name Principal Occupation (Past Five Years) ---- ------------------------------------- John W. Douglas Senior Vice President, Life & Health Operations, since January 1997; prior thereto, Senior Vice President, Life & Health Marketing, since January 1995; prior thereto, Senior Vice President, Life & Health Marketing, since 1990. 38 Kenneth A. McClure Senior Vice President, Life & Health Marketing, since January 1997; prior thereto, Senior Vice President, Life & Health Operations, since January 1995; prior thereto, Senior Vice President, Life & Health Operations, since August 1992. James A. Robinson Treasurer/Senior Vice President, Finance, since April 1992. Edward R. Dinstel Vice President, Life & Health Underwriting/Issue, since July 1991. Larkin W. Fields Vice President, Life Marketing Services, since November 1995; prior thereto, Vice President, Corporate Actuary, since September 1994; prior thereto, Vice President, Accounting, August 1993; prior thereto, Assistant Vice President, Operating Accounting, since May 1990. Robert J. Flannery Vice President, Actuarial Valuation, since January 1998; Vice President, Actuary-Annuities & Life Products, since March 1997; prior thereto, Vice President, Actuary, since March 1994; prior thereto, Assistant Vice President, Life Products Actuary, since September 1988. Richard T. Halinski, Jr. Assistant Secretary; Vice President and Managing Attorney of Life & Health, USAA, since November 1994; prior thereto, Assistant Vice President and Managing Attorney of Life & Health, USAA, since November 1990. Ronald W. Holtkamp Vice-President-Assistant Treasurer; Senior Vice President-Senior Financial Officer, Financial Service Center, USAA, since December 1997; prior thereto Senior Vice President, Controller, USAA, since June 1989. King Mawhinney Vice President, Life Sales since May 1997; prior thereto, Vice President, Health Insurance, since September 1994; prior thereto, Assistant Vice President, Health Insurance, since December 1992. Pattie S. McWilliams Vice President, Life/Annuity Service & Claims, since September 1993; prior thereto, Assistant Vice President, Policy Owner Services, since May 1988. James M. Middleton Vice President, Systems Integration & Program Control, since September 1997; prior thereto, Assistant Vice President, 39 Systems Integration & Analysis, since March 1994; prior thereto, Executive Director, Systems Integration & Program Control, since 1992. Stephen N. Patzman Vice President, Corporate Actuary since November 1995; prior thereto, Vice President, Operational Accounting, since September 1994; prior thereto, Assistance Vice President, Actuary, since July 1979. Leldon W. (Jack) Ward Vice President, Health Insurance since May 1997; prior thereto, Vice President, Life Sales, Life & Health Marketing, since January 1996; prior thereto, Assistant Vice President, USAA Life General Agency, since December 1992. Dwain A. Akins Assistant Secretary; Assistant Vice President and Managing Attorney of Life & Health Insurance Counsel, USAA, since November 1994; prior thereto, Executive Director and Managing Attorney, Life & Health Insurance Counsel, USAA, since February 1991. Bruce W. Clements Assistant Vice President-Deputy General Counsel and Assistant Secretary; Senior Vice President for P&C Counsel, USAA, since September 1997; prior thereto, Vice President-Deputy General Counsel, USAA, since June 1991. James R. Latham Assistant Vice President, Health Insurance Services, since March 1997; prior thereto, Executive Director, Health Insurance Services, since 1992. Allen R. Pierce Assistant Vice President, Actuary - reinsurance, Specialty Markets and Life Insurance, since January 1998; Assistant Vice President, Actuarial Support & Management Accounting Products and other related departments, since September 1994; prior thereto, Executive Director, since 1992. Gary D. Younglove Assistant Vice President & Administration, since September 1994; prior thereto, Executive Director, Plans & Administration, since 1992.
You should also review the accompanying Fund prospectuses for a description of the management of the Funds. 40 SEPARATE ACCOUNT The Separate Account was established by a resolution of the Board of Directors of USAA Life as a separate account on January 20, 1998. The Separate Account is organized as a unit investment trust and registered with the SEC under the Investment Company Act of 1940. Registration does not involve supervision of the management of the Separate Account by the SEC. The assets of the Separate Account are the property of USAA Life and are held for the benefit of the Owners and other persons entitled to payments under Policies issued through the Separate Account. The assets of the Separate Account equal to the reserves and other liabilities of the Separate Account are not chargeable with liabilities that arise from any other business which USAA Life may conduct. The Separate Account is divided into Variable Fund Accounts, each representing a different investment objective. Net Premium Payments are allocated to the Variable Fund Accounts in accordance with your instructions. SEE "Investment Options." Each Variable Fund Account invests exclusively in the shares at the net asset value of a Fund. Income and gains and losses from assets in each Variable Fund Account are credited to, or charged against, that Variable Fund Account without regard to income, gains, or losses in the other Variable Fund Accounts. POLICY DISTRIBUTION We intend to sell the Policy in all states in which we are licensed and the District of Columbia. USAA Investment Management Company ("USAA IMCO"), located at 10750 Robert F. McDermott Freeway, San Antonio, Texas 78288, is the principal underwriter distributing the Policy. USAA IMCO, a Texas corporation organized in May 1970, is registered with the SEC under the Securities Exchange Act of 1934 as a broker-dealer and is an active member of the National Association of Securities Dealers, Inc. The Policy will be sold by licensed life insurance sales representatives who are also registered representatives of USAA IMCO. These licensed insurance sales representatives are salaried employees and receive neither direct nor indirect commissions nor any renewal commissions from the sale of the policies. USAA IMCO serves as principal underwriter for the Policies pursuant to an amended and restated Distribution and Administration Agreement with USAA Life dated February 18, 1998. Pursuant to this agreement, USAA Life bears the cost of the salaries of the sales representatives who sell the policies and substantially all other distribution expenses of the Policies. The agreement terminates upon its assignment or upon at least ninety days' notice by either party. USAA IMCO also serves as principal underwriter and investment adviser for the following other registered investment companies: USAA Tax Exempt Fund, Inc., USAA Investment Trust, USAA State Tax-Free Trust, USAA Mutual Fund, Inc., USAA Life Investment Trust. In addition, USAA IMCO serves as principal 41 underwriter for the Separate Account of USAA Life, a registered investment company. TAX MATTERS The following is a discussion of certain federal income tax matters. We do not intend this to be tax advice, nor does the following summary purport to be complete or to cover all situations. You should consult your counsel and other competent advisers for more complete information. The individual situation of each Owner or beneficiary will determine how ownership or receipt of Policy proceeds will be treated for purposes of the federal estate tax, the state inheritance tax and other taxes. TAXATION OF POLICY PROCEEDS The following discussion is based on current federal income tax law and interpretations. It assumes that the Owner is a natural person who is a U.S. citizen and resident. The tax effects on non-U.S. residents or non-U.S. citizens may be different. The discussion is general in nature, and should not be considered tax advice, for which you should consult a qualified tax adviser. GENERAL. A Policy will be treated as "life insurance" for federal income tax purposes (a) if it meets the definition of life insurance under Section 7702 of the Internal Revenue Code (the "Code") and (b) for as long as the investments made by the underlying Mutual Funds satisfy certain investment diversification requirements under Section 817(h) of the Code. We believe that the Policies will meet these requirements and that: o the death benefit received by the beneficiary under your Policy will not be subject to federal income tax; and o increases in your Policy's cash value as a result of investment experience will not be subject to federal income tax unless and until there is a distribution from your Policy, such as a surrender or a partial surrender. The federal income tax consequences of a distribution from your Policy can be affected by whether your Policy is determined to be a "modified endowment contract" (which is discussed below). In all cases, however, the character of all income that is described below as taxable to the payee will be ordinary income (as opposed to capital gain). TESTING FOR MODIFIED ENDOWMENT CONTRACT STATUS. Your Policy will be a "modified endowment contract" if, at any time during the first seven Policy Years, you have paid a cumulative amount of premiums that exceeds the premiums that would have been paid by that time under a similar fixed-benefit insurance policy that was designed (based on certain assumptions mandated under the 42 Code) to provide for paid-up future benefits after the payment of seven level annual premiums. This is called the "seven-pay" test. Whenever there is a "material change" under a Policy, the Policy will generally be (a) treated as a new contract for purposes of determining whether the Policy is a modified endowment contract and (b) subjected to a new seven-pay period and a new seven-pay limit. The new seven-pay limit would be determined taking into account, under a prescribed formula, the accumulation value of the Policy at the time of such change. A materially changed Policy would be considered a modified endowment if it failed to satisfy the new seven-pay limit. A material change for these purposes could occur as a result of a change in death benefit option, the selection of additional rider benefits, an increase in your Policy's Specified Amount of coverage, and certain other changes. If your Policy's benefits are reduced during the first seven Policy Years (or within seven years after a material change), the calculated seven-pay premium limit will be redetermined based on the reduced level of benefits and applied retroactively for purposes of the seven-pay test. (Such a reduction in benefits could include, for example, a decrease in Specified Amount you request or, in some cases, a partial surrender or termination of additional benefits under a rider.) If the premiums previously paid are greater than the recalculated seven-payment premium level limit, the Policy will become a modified endowment contract. A life insurance policy that is received in exchange for a modified endowment contract will also be considered a modified endowment contract. OTHER EFFECTS OF POLICY CHANGES. Changes made to your Policy (for example, a decrease in benefits or a lapse or reinstatement of your Policy) may also have other effects on your Policy. Such effects may include impacting the maximum amount of premiums that can be paid under your Policy, as well as the maximum amount of accumulation value that may be maintained under your Policy. TAXATION OF PRE-DEATH DISTRIBUTIONS IF YOUR POLICY IS NOT A MODIFIED ENDOWMENT CONTRACT. As long as your Policy remains in force during the Insured's lifetime as a non-modified endowment contract, a Policy loan will be treated as indebtedness, and no part of the loan proceeds will be subject to current federal income tax. Interest on the loan generally will not be tax deductible. After the first 15 Policy Years, the proceeds from a partial surrender will not be subject to federal income tax except to the extent such proceeds exceed your "basis" in your Policy. (Your basis generally will equal the premiums you have paid, less the amount of any previous distributions from your Policy that were not taxable.) During the first 15 Policy Years, the proceeds from a partial surrender or a reduction in insurance coverage could be subject to federal income tax, under a complex formula, to the extent that your cash value exceeds your basis in your Policy. On the maturity date or upon full surrender, any excess in the amount of proceeds we pay (including amounts we use to discharge any Policy loan) over your basis in the Policy, will be subject to federal income tax. In addition, 43 if a Policy terminates after a grace period while there is a Policy loan, the cancellation of such loan and accrued loan interest will be treated as a distribution and could be subject to tax under the above rules. Finally, if you make an assignment of rights or benefits under your Policy you may be deemed to have received a distribution from your Policy, all or part of which may be taxable. TAXATION OF PRE-DEATH DISTRIBUTIONS IF YOUR POLICY IS A MODIFIED ENDOWMENT CONTRACT. If your Policy is a modified endowment contract, any distribution from your Policy during the Insured's lifetime will be taxed on an "income-first" basis. Distributions for this purpose include a loan (including any increase in the loan amount to pay interest on an existing loan or an assignment or a pledge to secure a loan) or partial surrender. Any such distributions will be considered taxable income to you to the extent your cash value exceeds your basis in the Policy. (For modified endowment contracts, your basis is similar to the basis described above for other Policies, except that it also would be increased by the amount of any prior loan under your Policy that was considered taxable income to you.) For purposes of determining the taxable portion of any distribution, all modified endowment contracts issued by the same insurer (or its affiliate) to the same owner (excluding certain qualified plans) during any calendar year are aggregated. The U.S. Treasury Department has authority to prescribe additional rules to prevent avoidance of "income-first" taxation on distributions from modified endowment contracts. A 10% penalty tax also will apply to the taxable portion of most distributions from a Policy that is a modified endowment contract. The penalty tax will not, however, apply to distributions (i) to taxpayers 59 1/2 years of age or older, (ii) in the case of a disability (as defined in the Code) or (iii) received as part of a series of substantially equal periodic annuity payments for the life (or life expectancy) of the taxpayer or the joint lives (or joint life expectancies) of the taxpayer and his or her beneficiary. If your Policy terminates after a grace period while there is a Policy loan, the cancellation of such loan will be treated as a distribution to the extent not previously treated as such and could be subject to tax, including the 10% penalty tax, as described above. In addition, on the maturity date and upon a full surrender, any excess of the proceeds we pay (including any amounts we use to discharge any loan) over your basis in the Policy, will be subject to federal income tax and, unless an exception applies, the 10% penalty tax. Distributions that occur during a Policy Year in which your Policy becomes a modified endowment contract, and during any subsequent Policy Years, will be taxed as described in the two preceding paragraphs. In addition, distributions from a Policy within two years before it becomes a modified endowment contract also will be subject to tax in this manner. This means that a distribution made from a Policy that is not a modified endowment contract could later become taxable as a distribution from a modified endowment contract. The Treasury Department has been authorized to prescribe rules which would treat similarly other distributions made in anticipation of a Policy becoming a modified endowment contract. POLICY LAPSES AND REINSTATEMENTS. A Policy which has lapsed may have the tax consequences described above, even though you may be able to reinstate that Policy. For tax purposes, some reinstatements may be treated as the purchase of a new insurance contract. 44 TERMINAL ILLNESS RIDER. Amounts received under an insurance policy on the life of an individual who is terminally ill, as defined by the tax law, are generally excludable from the payee's gross income. We believe that the benefits provided under our terminal illness rider meet the law's definition of terminally ill and can qualify for this income tax exclusion. This exclusion does not apply, however, to amounts paid to someone other than the Insured, if the payee has an insurable interest in the Insured's life because the Insured is a director, officer or employee of the payee or by reason of the Insured being financially interested in any trade or business carried on by the payee. DIVERSIFICATION. Under Section 817(h) of the Code, the Treasury Department has issued regulations that implement investment diversification requirements. Failure by us to comply with these regulations would disqualify your Policy as a life insurance policy under Section 7702 of the Code. If this were to occur, you would be subject to federal income tax on the income under the Policy for the period of the disqualification and for subsequent periods. Our Separate Account, through the Mutual Funds, intends to comply with these requirements. In connection with the issuance of then temporary diversification regulations, the Treasury Department stated that it anticipated the issuance of guidelines prescribing the circumstances in which the ability of a Policy Owner to direct his or her investment to particular Mutual Funds within a Separate Account may cause the Owner, rather than the insurance company, to be treated as the owner of the assets in the account. If you were considered the owner of the assets of the Separate Account, income and gains from the account would be included in your gross income for federal income tax purposes. USAA Life reserves the right to amend the Policies in any way necessary to avoid any such result. As of the date of this Prospectus, no such guidelines have been issued, although the Treasury Department has informally indicated that any such guidelines could limit the number of investment funds or the frequency of transfers among such funds. These guidelines may apply only prospectively, although retroactive application is possible if such standards are considered not to embody a new position. ESTATE AND GENERATION SKIPPING TAXES. If the Insured is the Policy Owner, the death benefit under a Policy will generally be includable in the Owner's estate for purposes of federal estate tax. If the Owner is not the insured person, under certain conditions, only an amount approximately equal to the cash surrender value of the Policy would be includable. Federal estate tax is integrated with federal gift tax under a unified rate schedule. In general, estates less than $625,000 (increasing annually, beginning in 1999, to $1 million in 2006 and thereafter) will not incur a federal estate tax liability. In addition, an unlimited marital deduction may be available for federal estate tax purposes. As a general rule, if a "transfer" is made to a person two or more generations younger than the Policy's Owner, a generation skipping tax may be payable at rates similar to the maximum estate tax rate in effect at the time. The generation skipping tax provisions generally apply to "transfers" that would be subject to the gift and estate tax rules. Individuals are generally allowed an aggregate generation skipping tax exemption of $1 million. Because these rules are complex, you should consult with a qualified tax adviser for 45 specific information, especially where benefits are passing to younger generations. If the Owner of the Policy is not the Insured, and the Owner dies before the Insured, the value of the Policy, as determined under Internal Revenue Service regulations, is includable in the federal gross of the Owner for federal estate tax purposes. Whether a federal estate tax is payable depends on a variety of factors, including those listed in the preceding paragraph. The particular situation of each Owner, Insured or beneficiary will determine how ownership or receipt of Policy proceeds will be treated for purposes of federal estate and generation skipping taxes, as well as state and local estate, inheritance and other taxes. PENSION AND PROFIT-SHARING PLANS. If Policies are purchased by a trust or other entity that forms part of a pension or profit-sharing plan qualified under Section 401(a) of the Code for the benefit of participants covered under the plan, the federal income tax treatment of such Policies will be somewhat different from that described above. If purchased as part of a pension or profit-sharing plan, the reasonable net premium cost for such amount of insurance is required to be included annually in the plan participant's gross income. This cost (generally referred to as the "P.S. 58" cost) is reported to the participant annually. If the plan participant dies while covered by the plan and the Policy proceeds are paid to the participant's beneficiary, then the excess of the death benefit over the Policy's cash value will not be subject to federal income tax. However, the Policy's cash value will generally be taxable to the extent it exceeds the participant's cost basis in the Policy. The participant's cost basis will generally include the costs of insurance previously reported as income to the participant. Special rules may apply if the participant had borrowed from the Policy or was an owner-employee under the plan. There are limits on the amounts of life insurance that may be purchased on behalf of a participant in a pension or profit-sharing plan. Complex rules, in addition to those discussed above, apply whenever life insurance is purchased by a tax qualified plan. You should consult a qualified tax adviser. OTHER EMPLOYEE BENEFIT PROGRAMS. Complex rules may also apply when a Policy is held by an employer or a trust, or acquired by an employee, in connection with the provision of other employee benefits. These Policy Owners must consider whether the Policy was applied for by or issued to a person having an insurable interest under applicable state law and with the insured person's consent. The lack of an insurable interest or consent may, among other things, affect the qualification of the Policy as life insurance for federal income tax purposes and the right of the beneficiary to receive a death benefit. ERISA. Employers and employer-created trusts may be subject to reporting, disclosure and fiduciary obligations under the Employee Retirement Income Security Act of 1974. You should consult a qualified legal adviser. 46 OUR TAXES. The operations of the Separate Account are reported in our federal income tax return, but we currently pay no income tax on the Separate Account's investment income and capital gains, because these items are, for tax purposes, reflected in our variable life insurance policy reserves. Therefore, no charge is currently being made to any Variable Fund Account of the Separate Account for taxes. We reserve the right to make a charge in the future for taxes incurred. For example, we may make a charge to the Separate Account for income taxes that we incur and that are allocable to the Policies. We may have to pay state, local or other taxes in addition to applicable taxes based on premiums. At present, these taxes are not substantial. If they increase, charges may be made for such taxes when they are attributable to our Separate Account or allocable to the Policies. Certain Mutual Funds in which your cash value is invested may elect to pass through to USAA Life taxes withheld by foreign taxing jurisdictions on foreign source income. Such an election will result in additional taxable income and income tax to USAA Life. The amount of additional income tax, however, may be more than offset by credits for the foreign taxes withheld which are also passed through. These credits may provide a benefit to USAA Life. WHEN WE WITHHOLD INCOME TAXES. Generally, unless you provide us with an election to the contrary before we make the distribution, we are required to withhold income tax from any proceeds we distribute as part of a taxable transaction under your Policy. In some cases, where generation skipping taxes may apply, we may also be required to withhold for such taxes unless we are provided satisfactory written notification that no such taxes are due. TAX CHANGES. The U.S. Congress frequently considers legislation that, if enacted, could change the tax treatment of life insurance policies. In addition, the Treasury Department may amend existing regulations, issue regulations on the qualification of life insurance and modified endowment contracts, or adopt new interpretations of existing law. State and local tax law or, if you are not a U.S. citizen and resident, foreign tax law, may also affect the tax consequences to you, the Insured, or your beneficiary, and are subject to change. Any changes in federal, state, local or foreign tax law or interpretation could have a retroactive effect. We suggest you consult a qualified tax adviser. TAXATION OF USAA LIFE USAA Life is taxed as a life insurance company under federal income tax laws. USAA Life does not initially expect to incur any income tax on the earnings or the realized capital gains attributable to the Separate Account. If, in the future, USAA Life determines that the Separate Account may incur federal income taxes, then it may assess a charge against the Separate Account Variable Fund Accounts for those taxes. Any charge will reduce the Policy's cash value. 47 STATE REGULATION OF USAA LIFE USAA Life, a stock life insurance company organized under the laws of Texas, is subject to regulation by the Texas Department of Insurance. An annual statement is filed with the Texas Department of Insurance on or before March 1st of each year covering the operations and reporting on the financial condition of USAA Life as of December 31 of the preceding year. Periodically, the Commissioner of Insurance examines the liabilities and reserves of USAA Life and the Separate Account and certifies their adequacy. In addition, USAA Life is subject to the insurance laws and regulations of all other states and jurisdictions where it is licensed. Generally, the Insurance Department of any other state applies the laws of the state of Texas in determining USAA Life's permissible investments. LEGAL MATTERS Freedman, Levy, Kroll, and Simonds, Washington, D.C., has advised USAA Life on certain federal securities law matters. All matters of Texas law pertaining to the Policy, including the validity of the Policy and USAA Life's right to issue the Policy under Texas insurance law, have been passed upon by Dwain A. Akins, Assistant Vice President and Assistant Secretary of USAA Life. USAA Life is not involved in any legal proceedings that may involve the assets of the Separate Account nor are we involved in any legal proceedings of a material nature involving our own assets. EXPERTS The consolidated financial statements of USAA Life Insurance Company and Consolidated Subsidiaries as of and for the year ended December 31, 1997 have been included in the Prospectus in reliance upon the reports of KPMG Peat Marwick, independent certified public accountants, appearing elsewhere herein, and upon the authority of said firm as experts In accounting and auditing. 48 REGISTRATION STATEMENT USAA Life has filed a registration statement under the Securities Act of 1933 with the SEC relating to the offering described in this Prospectus. This Prospectus does not contain all the information set forth in the registration statement and amendments thereto and the exhibits filed as part thereof, to all of which reference is hereby made for additional information concerning the Separate Account, USAA Life and the Policies. The additional information may be obtained at the SEC's main office in Washington, D.C., upon payment of the prescribed fees. FINANCIAL STATEMENTS You should consider the consolidated financial statements of USAA Life only as bearing on the ability of USAA Life to meet its contractual obligations under the Policies. They do not bear on the investment performance of the Separate Account. This Prospectus contains no financial statements for the Separate Account, which commenced operations as of the date of this Prospectus. DEFINITIONS IN THIS PROSPECTUS: ACCUMULATION UNIT or UNIT means an accounting unit of measure that we use to calculate values in each Variable Fund Account. ANNIVERSARY means the same date each succeeding year as the Effective Date of the Policy. ANNUAL TARGET PREMIUM PAYMENT means an annual amount of premium payment that we establish when we issue your Policy and that is shown on the Policy Information Page. We use it to determine whether a premium charge will be deducted from premium payments, whether a surrender charge is imposed on a full surrender, and whether the Guaranteed Death Benefit applies. BENEFICIARY means the person or entity designated to receive the death benefit upon the Insured's death. CASH SURRENDER VALUE means your Policy cash value less the surrender charge, if any, payable on full surrender of your Policy. 49 CASH VALUE means the sum of your Policy's cash values invested in the Variable Fund Accounts plus, if applicable, any cash value transferred from the Separate Account to USAA Life's general account to secure any Policy loan, plus any interest earnings credited to the loan account value, less the amount of any outstanding loan and any unpaid loan interest, and less any Monthly Deductions, transfer charges, and partial surrender charges applied through that date. DATE OF RECEIPT means the date actually received at our Home Office, subject to two exceptions: (1) if received on a date other than a Valuation Date, the Date of Receipt will be the following Valuation Date; and (2) if received on a Valuation Date after close of regular trading of the New York Stock Exchange, the Date of Receipt will be the following Valuation Date. DEATH BENEFIT means the benefit paid in accordance with the death benefit option in effect on the Insured's death, reduced by any Indebtedness and any due and unpaid Monthly Deductions, and increased by any optional insurance benefits provided by rider. DEATH BENEFIT OPTION means one of the two death benefit options that the Policy provides, namely, Option A and Option B. Option A is the greater of the current Specified Amount or the Minimum Amount Insured. Option B is the greater of the current Specified Amount, plus the Policy's cash value, or the Minimum Amount Insured. EFFECTIVE DATE means the date we approve the application and issue your Policy or the date we approve any increase in Specified Amount under your Policy. The Effective Date is shown on the Policy Information Page. FREE LOOK PERIOD means the period of time required by state law during which you may return the Policy for cancellation and receive a refund. If you request cancellation of the Policy during the Free Look Period, we will refund the greater of the premium payments your have paid or the value of the Variable Fund Accounts as of the Date of Receipt of your request to cancel plus any premium charge, Monthly Deduction and mortality and expense charge that we have deducted. The Free Look Period is shown on the Policy Information Page. FUND means an investment portfolio that has specific investment objectives and policies and is offered by a Mutual Fund. GUARANTEED DEATH BENEFIT means that we guarantee your Policy will not lapse during the first five Policy Years and that we will pay a Death Benefit if you have paid a sufficient amount of premium. HOME OFFICE means USAA Life Insurance Company, USAA Building, 9800 Fredericksburg Road, San Antonio, Texas 78288. INDEBTEDNESS means the sum of all unpaid Policy loans and unpaid accrued interest due on such loans. INSURED means the person whose life is insured. The Insured may or may not be the Owner. 50 LAPSE means your Policy has terminated because of insufficient cash value from which to deduct the Monthly Deduction and any loan interest then due. No insurance coverage exists when your Policy has lapsed. MATURITY DATE means the date that we will pay your Policy's cash value to you, as long as the Policy has not terminated because of lapse, full surrender, or the Insured's death. The Maturity Date is shown on the Policy Information Page. MONTHLY ANNIVERSARY means the same date of each succeeding month as the Effective Date of your Policy. MONTHLY DEDUCTION means a charge we make under your Policy each month against the Policy's cash value. The charge is equal to: 1) the cost of insurance and any riders, plus 2) the administrative charge that is applied during the first 12 months that the Policy is in effect, plus 3) the maintenance charge. MINIMUM AMOUNT INSURED means the amount of life insurance required by the Internal Revenue Code to qualify your Policy as life insurance and to exclude the Death Benefit from a Beneficiary's taxable income. MUTUAL FUND means an open-end investment company under federal securities law. It may offer shares of several different Funds for investment. NET ASSET VALUE means the current value of each Fund's total assets, less all liabilities, divided by the total number of shares outstanding. NET PREMIUM PAYMENT means the amount of a premium payment less the Policy's premium charge. NOTICE TO US means your signed statement that we receive at our Home Office and that is in a form satisfactory to us. OWNER means the person to whom we owe the rights and privileges of the Policy. POLICY INFORMATION PAGE means the page that identifies certain information about the Policy and specifies certain terms of the Policy. POLICY YEAR means a period of 12 calendar months starting with the Effective Date of the Policy, and each 12-month period thereafter. For example, if your Policy was issued on July 15, your first Policy Year would end on the following July 14. Each subsequent Policy Year would start on July 15 and end on July 14. 51 SEPARATE ACCOUNT means the Life Insurance Account of USAA Life Insurance Company. The Separate Account is an investment account established under Texas law through which we invest the Net Premium Payments received for investment in the Variable Fund Accounts under the Policy. The Separate Account is divided into subdivisions called the Variable Fund Accounts. Each Variable Fund Account invests the Net Premium Payments allocated to it in a particular Fund. We own the assets of the Separate Account. To the extent that the assets are equal to the reserves and other contractual liabilities, they are not chargeable with liabilities arising out of any other business of ours. The income, gains, and losses, realized or unrealized, from the assets of the Separate Account are credited or charged against the Separate Account without regard to other income, gains or losses of ours. SPECIFIED AMOUNT means the minimum death benefit payable as long as the Policy is in effect. It is also the amount of life insurance we issue. It is shown on the Policy Information Page. SURRENDER CHARGE means an amount that we may deduct from your Policy's cash value if you surrender your Policy in full. VALUATION DATE means any business day, Monday through Friday, on which the New York Stock Exchange is open for regular trading, except 1) any day on which the value of the shares of a Fund is not computed, or 2) any day during which no order for the purchase, surrender or transfer of Accumulation Units is received. VALUATION PERIOD means the period of time from the end of any Valuation Date to the end of the next Valuation Date. VARIABLE FUND ACCOUNT means a subdivision of the Separate Account in which you may invest Net Premium Payments. There are several Variable Fund Accounts under the Policy. Each Variable Fund Account corresponds to a particular Fund. Net Premium Payments allocated to a Variable Fund Account are invested in a particular Fund. The Variable Fund Accounts are also referred to in this Prospectus as Accounts. WE, OUR, US, or USAA Life means USAA Life Insurance Company. YOU, YOUR or YOURS refers to the Owner of the Policy. 52 We have not authorized anyone to give any information or make any representations other than those contained in this Prospectus (or any sales literature we approve) in connection with the offer of the Policies described herein. You may not rely on any such information or representations, if made. This Prospectus does not constitute an offer in any jurisdiction to any person to whom such offer would be unlawful. This Prospectus is valid only when accompanied or preceded by the current prospectuses for the Funds described herein. [BACK COVER PAGE] PART II INFORMATION NOT REQUIRED TO BE FILED IN A PROSPECTUS UNDERTAKING TO FILE REPORTS Subject to the terms and conditions of Section 15(d) of the Securities Exchange Act of 1934, the undersigned Registrant hereby undertakes to file with the Securities and Exchange Commission such supplementary and periodic information, documents, and reports as may be prescribed by any rule or regulation of the Commission heretofore or hereafter duly adopted pursuant to authority conferred in that section. UNDERTAKING PURSUANT TO RULE 484(b)(1) UNDER THE SECURITIES ACT OF 1933 Rule 484(b)(1) under the Securities Act of 1933 requires a description of "[a]ny provision or arrangement . . . whereby the registrant may indemnify a director, officer or controlling person of the registrant against liabilities arising under the [Securities] Act." Registrant, The Life Insurance Separate Account of USAA Life Insurance Company, does not, as a technical matter, have any directors or officers. Nevertheless, Registrant, pursuant to Section 13 of the Amended and Restated Distribution and Administration Agreement, may indemnify, albeit indirectly, directors and/or officers of its depositor, USAA Life Insurance Company ("USAA Life"), as follows. Section 13 of such Agreement provides that Registrant shall indemnify the employees of USAA Investment Management Company ("IMCO"), Registrant's principal underwriter. To whatever extent any director or officer of USAA Life may be deemed to be an "employee" of IMCO, Registrant may be deemed to be permitted to indemnify such person pursuant to such Agreement, which is filed as Exhibit 1.(3)(a) to this Registration Statement and is herein incorporated by reference. Additionally, there are certain other provisions or arrangements whereby USAA Life, and/or certain of its affiliated persons, may be indemnified by parties or entities other than Registrant. Such provisions or arrangements are incorporated herein by reference, as follows: to Article IX of the By-Laws of USAA Life, filed as Exhibit 1.6(b) to this Registration Statement; to Section 9 of the Amended and Restated Underwriting and Administrative Services Agreement, filed as Exhibit 1.(8)(a) to this Registration Statement; to Section 12 of the Transfer Agent Agreement, as amended, filed as Exhibit 1.(8)(c) to this Registration Statement; to Section 6(b) of the Reimbursement Agreement, filed as Exhibit 1.8(d)(iii) to this Registration Statement; to Section 12.2 of the Amended Participation Agreement, filed as Exhibit 1.8(e)(i) to this Registration Statement; to Section 7 of the Participation Agreement, filed as Exhibit 1.8(f)(i) to this Registration Statement; and to the Expense Allocation Agreement, filed as Exhibit 1.8(f)(ii) to this Registration Statement. Insofar as indemnification for liability arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. REPRESENTATION REGARDING THE REASONABLENESS OF AGGREGATE FEES AND CHARGES DEDUCTED UNDER THE POLICIES PURSUANT TO SECTION 26(e)(2)(A) OF THE INVESTMENT COMPANY ACT OF 1940 USAA Life Insurance Company ("USAA Life") represents that the fees and charges deducted under the Policies, in the aggregate, are reasonable in relation to the services rendered, the expenses expected to be incurred, and the risks assumed by the Company under the Policies. USAA Life bases its representation on its assessment of all of the facts and circumstances, including such relevant factors, as: the nature and extent of such services, expenses and risks; the need for USAA Life to earn a profit; the degree to which the Policies include innovative features; and the regulatory standards for exemptive relief under the Investment Company Act of 1940 used prior to October 1996, including the range of industry practice. This representation applies to all Policies sold pursuant to this Registration Statement, including those sold on the terms specifically described in the prospectus contained herein, or any variations therein, based on supplements, endorsements, or riders to any Policies or prospectus, or otherwise. S-2 CONTENTS OF REGISTRATION STATEMENT This Registration Statement contains the following papers and documents: The facing sheet. Reconciliation and tie between items in Form N-8B-2 and the Prospectus. Prospectus consisting of 53 pages. Undertaking, pursuant to Section 15(d) of the Securities Exchange Act of 1934 to file reports. Undertaking pursuant to Rule 484(b)(1) under the Securities Act of 1933, regarding indemnification. Representation regarding the reasonableness of aggregate fees and charges. The signatures. Written consents of the following persons: Dwain A. Akins, Esq., Assistant Vice President and Assistant Secretary, USAA Life Insurance Company (see Exhibit 2). (To be filed by pre-effective amendment.) KMPG Peat Marwick LLP, Independent Auditors (see Exhibit 6). (To be filed by pre-effective amendment.) The following exhibits: 1. Exhibits required by Article IX, paragraph A, of Form N-8B-2: (1) Resolution of Board of Directors of USAA Life Insurance Company establishing Life Insurance Separate Account of USAA Life Insurance Company. (The resolution is filed in lieu of a trust or indenture creating a unit investment trust.) (Filed herewith.) (2) Not applicable. (3)(a) Amended and Restated Distribution and Administration Agreement by and between USAA Life Insurance Company and USAA Investment Management Company, dated December 16, 1994 and amended February 7, 1997, and amended and restated, to encompass variable universal life insurance, February 18, 1998. (1) S-3 (3)(b) Not applicable. (3)(c) Not applicable. (4) Not applicable. (5) Form of Variable Universal Life Insurance Policy (Policy Form No. 31747), including riders. (Filed herewith.) (6)(a) Articles of Incorporation of USAA Life Insurance Company, as amended. (1) (6)(b) Bylaws of USAA Life Insurance Company. (1) (7) Not applicable. (8)(a) Amended and Restated Underwriting and Administrative Services Agreement by and between USAA Life Insurance Company, USAA Life Investment Trust and USAA Investment Management Company, dated December 16, 1994, amended February 7, 1997, and amended and restated, to encompass variable universal life insurance, February 18, 1998. (2) (8)(b)(i) Investment Advisory Agreement by and between USAA Life Investment Trust and USAA Investment Management Company, dated December 16, 1994. (2) (8)(b)(ii) Amendment to Investment Advisory Agreement by and between USAA Life Investment Trust and USAA Investment Management Company, with respect to Funds added to Trust, dated February 7, 1997. (3) (8)(b)(iii) Second Amendment to Investment Advisory Agreement by and between USAA Life Investment Trust and USAA Investment Management Company, to encompass variable life insurance, dated February 18, 1998. (2) (8)(c)(i) Transfer Agent Agreement by and between USAA Life Investment Trust and USAA Life Insurance Company, dated December 15, 1994. (2) (8)(c)(ii) Letter Agreement by and between USAA Life Investment Trust and USAA Life Insurance Company, appointing USAA Life as the Transfer Agent and Dividend Disbursing Agent for Funds added to Trust, dated February 7, 1997. (3) S-4 (8)(c)(iii) Amendment to Transfer Agent Agreement by and between USAA Life Investment Trust and USAA Life Insurance Company, to encompass variable universal life insurance, dated February 18, 1998. (2) (8)(d)(i) Amended Participation Agreement by and between Scudder Variable Life Investment Fund and USAA Life Insurance Company, dated February 3, 1995, as amended ________, 1998. (1) (8)(d)(ii) Amended Participating Contract and Policy Agreement by and between Scudder Investor Services, Inc. and USAA Investment Management Company, dated February 3, 1995, as amended ________, 1998. (1) (8)(d)(iii) Reimbursement Agreement by and between Scudder, Stevens & Clark, Inc. and USAA life Insurance Company, dated February 3, 1995. (1) (8)(d)(iv) Amended Letter Agreement by and between Scudder, Stevens & Clark, Inc., Scudder Investor Services, Inc., Scudder Variable Life Investment Fund, USAA Life Insurance Company and USAA Investment Management Company, dated February 3, 1995, as amended _____, 1998. (1) (8)(e)(i) Amended Participation Agreement by and between The Alger American Fund, Fred Alger Management, Inc., Fred Alger & Company, Incorporated, and USAA Life Insurance Company, dated December 16, 1994, as amended ___________, 1998. (1) (8)(e)(ii) Amended Expense Allocation Agreement by and between Fred Alger Management, Inc., Fred Alger & Company, Incorporated, and USAA Life Insurance Company, dated December 16, 1994 as amended ________, 1998. (1) (8)(f)(i) Participation Agreement by and between BT Insurance Funds Trust, Bankers Trust Company and USAA Life Insurance Company, dated ________, 1998. (1) (8)(f)(ii) Expense Allocation Agreement by and between Bankers Trust Company and USAA Life Insurance Company, dated ________, 1998. (1) (10)(a) Form of Application for the Variable Universal Life Insurance Policy filed as Exhibit 1.(5). (Filed herewith.) (10)(b) Proposed Section 1035 Exchange Form. (To be filed by pre-effective amendment.) S-5 Other Exhibits 2 Opinion and Consent of Dwain A. Akins, Esq. Assistant Vice President and Assistant Secretary, USAA Life Insurance Company, as to the legality of the Policy interests being registered. (To be filed by pre-effective amendment.) 3 Not applicable. 4 Not applicable. 5 Financial Data Schedule. (See Exhibit 27 below.) 6 Consent of KPMG Peat Marwick LLP, Independent Auditors. (To be filed by pre-effective amendment.) 7 Powers of Attorney for: Edwin L. Rosane, Robert G. Davis, Bradford W. Rich, Josue Robles, Jr., Michael J.C. Roth, Janis E. Marshall, William B. Tracy, Donald R. Walker, and James A. Robinson. 8 Description of USAA Life Insurance Company Transfer and Redemption Procedures for Variable Universal Life Insurance Policy, pursuant to Rule 6e-3(T)(b)(12)(iii) under the Investment Company Act of 1940. (To be filed by pre-effective amendment.) 27 Financial Data Schedule. (Inapplicable, because, notwithstanding Instruction 5 as to Exhibits, the Commission staff has advised that no such Schedule is required.) (1) Incorporated herein by reference to Post-Effective Amendment No. 4, filed on March ___, 1998, to the Form N-4 Registration Statement (File No. 33-82268) of Separate Account of USAA Life Insurance Company. (2) Incorporated herein by reference to Post-Effective Amendment No. 6, filed on March ___, 1998, to the Form N-1A Registration Statement (File No. 33-82270) of USAA Life Investment Trust. (3) Incorporated herein by reference to Post-Effective Amendment No. 3, filed on February 14, 1997, to Form N-1A Registration Statement (File No. 33-82270) of USAA Life Investment Trust.
S-6 SIGNATURE Pursuant to the requirements of the Securities Act of 1933, the Registrant, Life Insurance Separate Account of USAA Life Insurance Company, has duly caused this registration statement to be signed on its behalf by the undersigned thereunto duly authorized, and its seal to be hereunto fixed and attested, all in the City of San Antonio, and State of Texas, on this 30th day of January, 1998. Signature: Life Insurance Separate Account of USAA Life Insurance Company (Registrant) By: USAA Life Insurance Company (On behalf of Registrant and itself) By: /s/ EDWIN L. ROSANE ------------------- EDWIN L. ROSANE Vice Chairman, Chief Executive Officer and President Attest: /s/ DWAIN A. AKINS ------------------ DWAIN A. AKINS Assistant Vice President and Assistant Secretary S-7 SIGNATURE Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following person in the capacity and on the date indicated.
Signature Title Date /s/ ROBERT G. DAVIS Chairman January 30, 1998 ------------------- Robert G. Davis
S-8 SIGNATURE Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following person in the capacity and on the date indicated.
Signature Title Date /s/ BRADFORD W. RICH Director January 30, 1998 -------------------- Bradford W. Rich
S-9 SIGNATURE Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following person in the capacity and on the date indicated.
Signature Title Date /s/ JOSUE ROBLES, JR Director January 30, 1998 -------------------- Josue Robles, Jr.
S-10 SIGNATURE Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following person in the capacity and on the date indicated.
Signature Title Date /s/ MICHAEL J.C. ROTH Director January 30, 1998 --------------------- Michael J.C. Roth
S-11 SIGNATURE Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following person in the capacity and on the date indicated.
Signature Title Date /s/JANIS E. MARSHALL Director January 30, 1998 -------------------- Janis E. Marshall
S-12 SIGNATURE Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following person in the capacity and on the date indicated.
Signature Title Date /s/WILLIAM B. TRACY Director January 30, 1998 ------------------- William B. Tracy
S-13 SIGNATURE Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following person in the capacity and on the date indicated.
Signature Title Date /s/ DONALD R. WALKER Director January 30, 1998 -------------------- Donald B. Walker
S-14 SIGNATURE Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following person in the capacity and on the date indicated.
Signature Title Date /s/JAMES A. ROBINSON Senior Vice President January 30, 1998 --------------------- and Treasurer James A. Robinson (Principal Financial and Accounting Officer)
S-15 EXHIBIT LIST 1.(1) Resolution of Board of Directors of USAA Life Insurance Company establishing Life Insurance Separate Account of USAA Life Insurance Company. (The resolution is filed in lieu of a trust or indenture creating a unit investment trust.) 1.(5) Form of Variable Universal Life Insurance Policy (Policy Form No. 31747), including riders. 1.(10)(a) Form of Application for Variable Universal Life Insurance Policy filed as Exhibit 1.(5). 7. Powers of Attorney for: Edwin L. Rosane, Robert G. Davis, Bradford W. Rich, Josue Robles, Jr., Michael J.C. Roth, Janis E. Marshall, William B. Tracy, Donald R. Walker, and James A. Robinson. S-16 EX-1.(1) 2 EXHIBIT 1.(1) WRITTEN CONSENT TO ACTION BY THE BOARD OF DIRECTORS OF USAA LIFE INSURANCE COMPANY The undersigned, being and constituting the Board of Directors of USAA Life Insurance Company, a Texas Corporation, do hereby consent in writing, without a meeting, to the adoption of the following resolutions: WHEREAS, the Board of Directors (the "Board") has determined that it is desirable for the USAA Life Insurance Company (the "Company") to provide variable life insurance policies to its customers and prospective customers; NOW THEREFORE, the Board resolves as follows: RESOLVED, that the Company will amend its Certificate of Authority in those states where required in order to authorize it to sell variable life insurance policies. The Company will file the variable life insurance policy form in all states where it is licensed to do business and any other legal documents, affidavits, exhibits or any other information required by the various State Insurance Departments. RESOLVED, that the Life Insurance Separate Account of USAA Life Insurance Company (the "Separate Account") be and it is hereby established in accordance with the provisions of Chapter 3, Article 3.75 of the Texas Insurance Code, and the Regulations promulgated thereunder, for the purpose of providing a funding medium to support reserves under such variable life insurance policies as may be issued by the Company. RESOLVED, that the Company and its Directors, Officers, employees, and affiliates with respect to the purchase or sale of investments of the Separate Account will adhere to standards of conduct that comply with 15 United States Code ss. 80a-17, as amended, and applicable rules and regulations thereunder and will adhere to a Code of Ethics to assure compliance with these legal requirements. RESOLVED, that no recommendation shall be made to an applicant to purchase a variable life insurance policy and that no variable life insurance policy shall be issued in the absence of reasonable grounds to believe that the purchase of such policy suitable for such applicant on the basis of information furnished after reasonable inquiry of such applicant concerning the applicant's insurance and investment objectives, financial situation and needs, and any other information known to the registered representative acting on behalf of the Company and the broker/dealer that the Company contracts with to distribute the variable life insurance policy making the recommendation. RESOLVED, that the Offices of the Company are authorized to take all actions which they deem necessary or appropriate to issue and sell variable life insurance policies. Such authority shall include, without limitation, registering the product in an amount (which may be in an indefinite amount) from time to time under the Securities Act of 1933, as amended, registering the Separate Account as a unit investment trust under the Investment Company Act of 1940, as amended, and filing any exemptive application or applications, and any amendment thereto with respect to the product or the Separate Account, under the Investment Company Act of 1940, as amended, and taking all other actions necessary or appropriate in order that such proposed issue and sale of the variable life insurance policies and operation of the Separate Account may comply with the requirements of the Securities Act of 1933, as amended, the Investment Company act of 1940, as amended, the Securities Exchange Act of 1934, as amended the Investment Advisers Act of 1940, as amended, and all other applicable federal and state laws and regulations. RESOLVED, that the Separate Account may have amounts allocated thereto (including proceeds applied under optional modes of settlement) to provide for variable life insurance policies (and benefits incidental thereto) payable in variable amounts. The Separate Account shall be established and maintained pursuant to the laws of Texas under which income, gains and losses, whether or not realized, from assets allocated to the Separate Account, are, in accordance with the applicable policy, credited to or charged against the Separate Account without regard to other income, gains or losses of the Company. The Separate Account shall be legally segregated, the assets of the Separate Account shall, at the time during the year that adjustments in the reserves are made, have a value at least equal to the reserves and other policy liabilities with respect to the Separate Account, and at all other times, shall have a value approximately equal to or in excess of such reserves and liabilities, and that portion of such assets having a value equal to, or approximately equal to, such reserves and contract liabilities shall not be chargeable with liabilities arising out of any other business which the Company may conduct. RESOLVED, that the fundamental investment policy of the Separate Account shall be to invest or reinvest the assets of the Separate Account in securities issued by such investment company or investment companies registered under the Investment Company Act of 1940, as amended, as the Officers may select and designate, consistent with the terms of the variable life insurance policies and applicable laws. RESOLVED, that one or more Sub-Accounts be established within the Separate Account to which net premiums from variable life insurance policies will be allocated in accordance with instructions received from policy owners, and that the Officers are authorized to increase or decrease the number of Sub-Accounts in the Separate Account, or consolidate or otherwise modify the Sub-Accounts in the Separate Account, as they deem necessary or appropriate, subject to applicable law. RESOLVED, that each Sub-Account shall invest only in the shares of a single investment company or a single portfolio of an investment company organized as a series fund pursuant to the Investment Company Act of 1940. RESOLVED, that the President and Senior Vice President, Finance are authorized to transfer funds from the Separate Account to the General Account as deemed appropriate and consistent with the terms of the variable life insurance policies and applicable laws. RESOLVED, that the Officers are authorized to establish criteria by which the Company shall institute procedures to provide for a pass-through of voting rights to the owners of any variable life insurance policies issued by the Company as required by applicable laws, or otherwise appropriate, with respect to the shares of any investment company or companies whose shares are held in the Separate Account. RESOLVED, that Dwain A. Akins and Richard T. Halinski, Jr., Counsel for the Company are constituted and appointed agents to receive service of process and notices and communications from the Securities and Exchange Commission with respect to such registration statements or exemptive applications as may be filed on behalf of the Company concerning the Separate Account, and to exercise the powers given to such agent in the rules and regulations of the Securities and Exchange Commission under the Securities Act of 1933, as amended, the Investment Company Act of 1940, as amended, the Securities Exchange Act of 1934, as amended, and the Investment Advisers Act of 1940, as amended, and all other applicable federal and state laws and regulations. RESOLVED, that the Officers are authorized to do or cause to be done all things necessary or appropriate, as may be advised by counsel, to comply with, or obtain exemptions from, federal or state statutes or regulations that may be applicable to the issuance and sale of variable life insurance policies through the Separate Account of the Company, including without limitation, applying for exemptions with respect to policies to be issued in the future through Separate Accounts to be established either by the Company or an affiliate of the Company. RESOLVED, that the Company will act as the Depositor for the Separate Account and, further, that the Company will provide all or some administrative services in connection with the establishment and maintenance of the Separate Account and other administrative services in connection with the issuance and sale of such variable life insurance policies, all on such terms and subject to such modifications as the Officers deemed necessary or appropriate. RESOLVED, that the Officers are authorized to organize and incorporate a suitable investment company or companies under state corporate or business trust law and the Investment Company Act of 1940, or to take steps to have an existing investment company or companies organize one or more suitable series or portfolios under the Act, as deemed appropriate by the Officers, the shares of which shall be purchased by the Company in order to serve as an investment vehicle for the Separate Account, and, further, that the Officers are authorized to do all things they deem necessary or appropriate to carry out the foregoing. RESOLVED, that in order for the Company to have an efficient administration system for the variable life insurance policies, the Board of Directors of the Company may enter into agreements to secure such services for a reasonable fee, compensation or remuneration with a Subsidiary, Affiliate or Independent Contractor, all on such terms and subject to such conditions as the Officers deem necessary or appropriate to effectuate the foregoing. RESOLVED, that in order for a suitable distribution system to be in effect in connection with the sale of variable life insurance policies, the Officers are authorized to enter into a distribution agreement with a subsidiary, affiliate, or independent contractor, all on such terms and such conditions as the Officers deem necessary or appropriate. This consent shall be filed with the Minutes of the Corporation. DATED: January 20, 1998 /S/EDWIN L. ROSANE /S/MICHAEL J. C. ROTH - --------------------------- --------------------------- Edwin L. Rosane Michael J. C. Roth /S/ROBERT G. DAVIS /S/JANICE E. MARSHALL - --------------------------- --------------------------- Robert G. Davis Janice E. Marshall /S/BRADFORD W. RICH /S/WILLIAM B. TRACY - --------------------------- --------------------------- Bradford W. Rich William B. Tracy /S/JOSUE ROBLES, JR. /S/DONALD R. WALKER - --------------------------- --------------------------- Josue Robles, Jr. Donald R. Walker EX-1.(5) 3 EXHIBIT 1.(5) [USAA LOGO] USAA LIFE INSURANCE COMPANY 9800 Fredericksburg Road San Antonio, TX 78288 (A Stock Company) VARIABLE UNIVERSAL LIFE INSURANCE POLICY THE INSURING AGREEMENT USAA LIFE INSURANCE COMPANY will pay the beneficiary the death benefit of this policy upon receiving due proof that the death of the insured occurred while this policy was in effect. This policy is a flexible premium variable life insurance policy. The specified amount of insurance may be increased or decreased by the owner. THE DEATH BENEFIT OF THIS POLICY MAY BE VARIABLE AS TO THE AMOUNT OR DURATION, OR BOTH, DEPENDING UPON THE DEATH BENEFIT OPTION SELECTED AND THE INVESTMENT EXPERIENCE OF THE LIFE INSURANCE SEPARATE ACCOUNT OF USAA LIFE INSURANCE COMPANY ("SEPARATE ACCOUNT"), BUT SHALL NEVER BE LESS THAN THE SPECIFIED AMOUNT (SUBJECT TO ANY POLICY INDEBTEDNESS AND PARTIAL SURRENDERS) AS LONG AS THERE IS SUFFICIENT CASH VALUE TO KEEP THE POLICY IN EFFECT. See Section 8 (Death Benefit Provisions). THE CASH VALUE OF THIS POLICY WILL VARY FROM DAY TO DAY. IT MAY INCREASE OR DECREASE DEPENDING ON THE INVESTMENT EXPERIENCE OF THE SEPARATE ACCOUNT. IT IS NOT GUARANTEED AS TO DOLLAR AMOUNT. FLEXIBLE PREMIUMS PAYABLE DURING LIFETIME OF INSURED OR UNTIL MATURITY DATE. VARIABLE DEATH BENEFIT PAYABLE PRIOR TO MATURITY DATE. CASH VALUE PAYABLE ON MATURITY DATE. INVESTMENT EXPERIENCE REFLECTED IN BENEFITS. NON-PARTICIPATING POLICY. This policy is issued by USAA LIFE INSURANCE COMPANY on the Effective Date shown on the Policy Information Page. We have tried to make this policy readable. However, there still may be some technical terms and concepts that are difficult to understand. Should you need help in understanding your policy, please call us at our toll-free number. FREE LOOK PERIOD - RIGHT TO RETURN You may cancel this contract within 10 days* after you receive it by returning it to the Company or the representative who sold you the contract with your ___________________________ written request for cancellation. With EDWIN L. ROSANE - PRESIDENT respect to the Variable Fund Accounts, we will refund the greater of the premium payment made or the value of the ____________________________ Variable Fund Account as of the Date of BRADFORD W. RICH - SECRETARY Receipt of the request to cancel plus any premium charge, monthly deduction and mortality and expense risk charge that had been deducted. The contract will be deemed void as if it had never been issued. *A longer Free Look Period may be required by law in some states. The READ YOUR POLICY CAREFULLY! exact number of days in your Free Look Period is shown on the Policy Information Page. Page 1 ----------------------------------------------------------------------------- TABLE OF CONTENTS ----------------------------------------------------------------------------- Section 1. Introduction Page Section 2. Policy Information Page Page Section 3. Table of Monthly Guaranteed Cost of Page Insurance Rates Section 4. Definitions Page Section 5. Ownership and Beneficiary Provisions Page Section 6. General Provisions Page Section 7. Premium Provisions Page Section 8. Death Benefit Provisions Page Section 9. Cash Value and Policy Charges Page Section 10. Availability of Funds and Voting Rights Page Section 11. Policy Surrender and Partial Surrenders Page Section 12. Grace and Reinstatement Periods Page Section 13. Loan Provisions Page Section 14. Settlement Options Page Section 15. Table of Guaranteed Payments Page
Page 2 ----------------------------------------------------------------------------- Section 1. INTRODUCTION ----------------------------------------------------------------------------- This is a variable universal life insurance policy also commonly known as a flexible premium variable life insurance policy. The death benefit that is paid when the Insured dies may vary. After charges as described in this policy are deducted from the premium paid, your Net Premium Payment is invested to build the policy's cash value. A Monthly Deduction is subtracted from the policy's cash value to pay for the cost of insurance and other charges. Your Net Premium Payment will be allocated and invested as directed by you. It will be invested in an Account which does not guarantee the principal or any earnings (this is known as a Variable Fund Account). There are several Variable Fund Accounts under this policy which correspond to various Mutual Funds in which you may choose to invest. Your value in the Variable Fund Accounts will vary with the investment experience of the corresponding Fund. The value may rise or it may fall. You have access to the policy's cash value either through a loan, a partial surrender or a total surrender. A total surrender results in the termination of the life insurance policy. This is a brief summary of the life insurance policy. You must read the rest of this policy to understand the details of how this life insurance policy works. Page 3 ----------------------------------------------------------------------------- Section 2. POLICY INFORMATION PAGE ----------------------------------------------------------------------------- Page 4 ----------------------------------------------------------------------------- Section 3. TABLE OF MONTHLY GUARANTEED COST OF INSURANCE RATES ----------------------------------------------------------------------------- Page 5 ----------------------------------------------------------------------------- Section 4. DEFINITIONS ----------------------------------------------------------------------------- IN THIS POLICY - ACCUMULATION UNIT means an accounting unit of measure used to calculate values in each Variable Fund Account. ADMINISTRATIVE CHARGE means a monthly charge deducted from the policy's cash value during the first Policy Year only. It compensates us for the start-up expenses incurred in issuing this policy. It is shown on the Policy Information Page. ANNIVERSARY means the same date each succeeding year as the Effective Date of the policy. ANNUAL TARGET PREMIUM PAYMENT means an annual amount of premium payment that we establish when the policy is issued and that is shown on the Policy Information Page. It is used to determine whether a Premium Charge will be deducted from premium payments, whether a surrender charge is imposed on a full surrender and whether the Guaranteed Death Benefit applies. BENEFICIARY means the person or entity designated to receive the death benefit upon the Insured's death. CASH VALUE - this term is explained in Section 9 of this policy. COMPANY, WE, OUR, or US means USAA Life Insurance Company. DATE OF RECEIPT means the date actually received at our Home Office, subject to two exceptions: (1) if received on a date other than a Valuation Date, the Date Of Receipt will be the following Valuation Date; and (2) if received on a Valuation Date after close of trading of the New York Stock Exchange, the Date Of Receipt will be the following Valuation Date. DEATH BENEFIT - this term is explained in Section 8 of this policy. EFFECTIVE DATE means the date we approve the application and issue this policy. The Effective Date is shown on the Policy Information Page. FREE LOOK PERIOD means the period of time required by state law during which the owner may return the policy for cancellation and receive a refund. If cancellation of the policy is requested during the Free Look Period we will refund the greater of the premium payment or the value of the Variable Fund Accounts as of the Date of Receipt of the request to cancel plus any Premium Charge, Monthly Deduction and Mortality and Expense Charge that had been deducted. The Free Look Period is shown on the Policy Information Page. FUND means an investment portfolio that has specific investment objectives and policies and is offered by a Mutual Fund. GUARANTEED DEATH BENEFIT means that the Company guarantees that the policy will not lapse during the first five policy years and that a death benefit will be paid if a sufficient amount of premium has been paid. See the Guaranteed Death Benefit Provision on page _____. HOME OFFICE means USAA LIFE INSURANCE COMPANY; USAA BUILDING, 9800 FREDERICKSBURG ROAD, SAN ANTONIO, TEXAS 78288. INDEBTEDNESS means the sum of all unpaid policy loans and unpaid accrued interest due on loans. INSURED means the person whose life is insured. The insured is identified on the Policy Information Page. The Insured may or may not be the Owner. Page 6 LAPSE means the policy has terminated because of insufficient cash value from which to deduct the Monthly Deduction and any loan interest then due. No insurance coverage exists when the policy has Lapsed. MAINTENANCE CHARGE means a monthly charge deducted from the policy's cash value. It compensates us for recurring administrative expenses related to the maintenance of the policy and the Separate Account. It is shown on the Policy Information Page. MATURITY DATE means the date that we will pay the policy's cash value, to the Owner, as long as the policy has not terminated because of Lapse, full surrender, or the Insured's death. The Maturity Date is shown on the Policy Information Page. MONTHLY ANNIVERSARY means the same date of each succeeding month as the Effective Date of the policy. MONTHLY DEDUCTION means a charge made under this policy each month against the policy's cash value. The charge is equal to: 1) the cost of insurance and any riders; plus 2) the Administrative Charge that is applied during the first 12 months that the policy is in effect; plus 3) the Maintenance Charge. MINIMUM AMOUNT INSURED means the amount of life insurance required by the Internal Revenue Code to qualify the policy as life insurance and to exclude the death benefit from the Beneficiary's taxable income. MUTUAL FUND means an open-end investment company under federal securities law. It may offer shares of several different Funds for investment. NET ASSET VALUE means the current value of each Fund's total assets, less all liabilities, divided by the total number of shares outstanding. NET PREMIUM PAYMENT means the amount of a premium payment less the policy's Premium Charge. See the Premium Charge provision in Section 7. NOTICE TO US means your signed statement which is received at our Home Office and is in a form satisfactory to us. OWNER means the person to whom we owe the rights and privileges of this policy. POLICY INFORMATION PAGE means the page that identifies certain information about this policy and specifies certain terms of the policy. It appears at page 4. POLICY YEAR means a period of 12 calendar months starting with the Effective Date of the policy, and each 12-month period thereafter. For example, if your policy was issued on July 15, your first Policy Year would end on the following July 14. Each subsequent Policy Year would start on July 15 and end on July 14. PREMIUM CHARGE means an amount that we deduct from premium payments to compensate us for sales charges and taxes related to the policy. SEPARATE ACCOUNT means the investment account established under Texas law through which USAA Life Insurance Company invests the Net Premium Payments received for investment in the Variable Fund Accounts under this policy. The Separate Account is divided into subdivisions called the Variable Fund Accounts under this policy. Each Variable Fund Account invests the Net Premium Payments allocated to it in a particular Fund. The assets of the Separate Account are owned by USAA Life Insurance Company. To the extent that the assets are equal to the reserves and other contractual liabilities, they are Page 7 not chargeable with liabilities arising out of any other business of the Company. The income, gains, and losses, realized or unrealized, from the assets of the Separate Account are credited or charged against the Separate Account without regard to other income, gains or losses of the Company. The Separate Account is registered as an investment company under federal securities law. SPECIFIED AMOUNT means the minimum death benefit payable as long as the policy is in effect. It is also the amount of life insurance issued by the Company. It is shown on the Policy Information Page. SURRENDER CHARGE means an amount that may be deducted from the policy's cash value if the Owner surrenders the policy in full. See the Full Surrender Charge provision on page _____. VALUATION DATE means any business day, Monday through Friday, on which the New York Stock Exchange is open for regular trading, except 1) Any day on which the value of the shares of a Fund is not computed. 2) Any day during which no order for the purchase, redemption, surrender or transfer of Accumulation Units is received. VALUATION PERIOD means the period of time from the end of any Valuation Date to the end of the next Valuation Date. VARIABLE FUND ACCOUNT means a subdivision of the Separate Account in which premium payments may be invested. There are several Variable Fund Accounts under this policy. Each Variable Fund Account corresponds to a particular Fund. Net Premium Payments allocated to a Variable Fund Account are invested by the Company in the particular Fund. The Variable Fund Accounts are also referred to in this policy as Accounts. YOU, YOUR or YOURS refers to the Owner of the policy. ----------------------------------------------------------------------------- Section 5. OWNERSHIP AND BENEFICIARY PROVISIONS ----------------------------------------------------------------------------- OWNER The rights and privileges of this policy belong to you, the Owner, during the Insured's lifetime. The policy names you or someone else as the Insured. If you are not the Insured, you should name a successor owner who will become the Owner if you die before the Insured. If you die before the Insured and there is no successor owner, ownership passes to your estate. CHANGE OF OWNERSHIP You may change the ownership of this policy by sending Notice To Us during the Insured's lifetime. The change will take effect on the date we receive the request. A change in ownership will not affect actions taken by us before the request is received. A change of ownership is subject to the rights of an assignee of record and any irrevocable beneficiary. ASSIGNMENT You may collaterally assign this policy subject to the written consent of any irrevocable beneficiaries and any other assignees of record. We are not bound by an assignment until it is received at our Home Office. We are not responsible for determining the validity of an assignment. BENEFICIARY The Beneficiary is the person or entity named in the application, unless changed by you during the Insured's lifetime. If more than one primary Beneficiary is named, the death benefit will be paid equally to them, unless you direct otherwise. Benefits payable to a Beneficiary who dies before the Insured will be paid equally to the remaining Beneficiaries, unless otherwise directed. If no Beneficiary survives the Insured, the death benefit will be paid to you, if living, or, if not, to your estate. Page 8 CHANGE OF BENEFICIARY You may change the Beneficiary of this policy by sending Notice To Us during the Insured's lifetime. The written consent of any irrevocable beneficiaries must be obtained before any change. The change will take effect on the date we receive the request. If we make a benefit payment in good faith before receiving the request, we will receive credit for the payment against our liability under the policy. A change of Beneficiary is subject to the rights of an assignee of record. ----------------------------------------------------------------------------- Section 6. GENERAL PROVISIONS ----------------------------------------------------------------------------- CONTRACT EXPLANATION The policy is a legal contract between you and us. The consideration for issuing this policy is: 1) Completion of the application, and 2) Payment of the first premium. The policy, application, any supplemental applications, riders, endorsements, and amendments form the entire contract. We will consider statements in the application as representations and not warranties. Only representations contained in the application or supplemental application will be used to void this policy or to defend a claim under this policy. Only the president or secretary of the Company has authority to waive or change a provision of this policy, and then only in writing. INCONTESTABILITY We will not contest this policy, or any increase to it, except for Lapse or fraud, after the policy or increase has been in force during the Insured's lifetime for two years. During any two-year contestable period, we have the right to contest the validity of this policy based on material misstatements or omissions made in the application or supplemental application. The two-year period for the policy begins on the Effective Date and the two-year period for any increase begins on the date the increase is approved and made effective. If we rescind the policy we will refund the premiums paid less any Indebtedness and any previous partial surrenders. This provision does not apply to optional policy benefits added by rider. Each rider contains its own incontestability provision. MISSTATEMENT OF AGE OR SEX If the Insured's age or sex has been misstated on the application, we will adjust the cash value and death benefit to those amounts that would be obtained based on the correct Monthly Deductions since the policy's Effective Date. SUICIDE EXCLUSION If the Insured commits suicide (while sane or insane) during the first two years the policy is in effect, we will not pay a death benefit. We will refund the premiums paid less any Indebtedness and any previous partial surrenders. If the Specified Amount is increased by the Owner, a separate two-year suicide exclusion period is applied to the amount of the increase. If the Insured dies as a result of suicide (while sane or insane) during the separate two-year suicide exclusion period, we will only pay the death benefit attributable to the initial Specified Amount (on which the two-year exclusion period has expired). We will refund the premium paid less any Indebtedness and any partial surrenders attributable to the increase in the Specified Amount. Page 9 ANNUAL STATEMENT AND REPORTS Within 30 days after this policy's Anniversary, we will mail you an annual statement showing: 1) the amount of the death benefit; 2) the cash value; 3) any Indebtedness; 4) any loan interest charge; 5) any loan repayments since the last annual report; 6) any partial surrenders since the last annual report; 7) all premium payments since the last annual report; 8) all deductions and charges since the last annual report; and, 9) other pertinent information required by any applicable law or regulation, or that we deem helpful to you. We may instead, at our discretion, mail you the annual statement within 30 days after December 31 of each year. The information contained in the annual statement will be computed as of a date not more than 60 days prior to the mailing of the annual statement. We may at our discretion send you statements more frequently. As required by state and federal law, we will also send you semi-annual reports for the Funds that correspond to the Variable Fund Accounts, semi-annual reports for the Separate Account, and any other information. POLICY SERVICE All request for changes to this policy must be clear and in writing and must be received by our Home Office. Requests to change premium payment allocation, requests for partial surrenders, requests for loans, and requests for transfers between Accounts may, however, be made by telephone. We will employ reasonable procedures to confirm that instructions communicated by telephone are genuine, and only if we do not, will we be liable for any losses because of unauthorized or fraudulent instructions. Information will be obtained prior to any discussion regarding the contract including but not limited to: (1) USAA number or contract number, (2) the name of the Owner, and (3) social security number of the Owner. In addition, all telephone communications with an Owner are recorded and confirmations of all transactions are sent to the Owner's address. We may modify, suspend, or discontinue this telephone transaction privilege at any time without prior notice. NON-PARTICIPATING This is a non-participating policy. This policy will not share in any of the Company's profits or surplus earnings. We will not pay dividends on this policy. CONFORMITY WITH LAW This policy is subject to the laws of the state where it was issued. To the extent that the policy may not comply, it will be interpreted and applied to comply. BASIS OF RESERVES All of the reserve values of this policy are the same or more than the minimums required by the laws of the state where the policy was issued. Reserves are computed by the Commissioner's Reserve Valuation Method.. In the states which require it, we have filed a detailed statement with the state insurance department. ----------------------------------------------------------------------------- Section 7. PREMIUM PROVISIONS ----------------------------------------------------------------------------- INITIAL PAYMENT Any part of the initial Net Premium Payment or any subsequent Net Premium Payment made during the free look period that is requested to be allocated to Page 10 any of the Variable Fund Accounts will be allocated to the Money Market Variable Fund Account on the Effective Date. The Net Premium Payment will remain in the Money Market Variable Fund Account for the Free Look Period plus five days. On the Valuation Date immediately following the end of that period, the initial Net Premium Payment, together with any subsequent Net Premium Payments that have been made, plus any earnings will be allocated among the Variable Fund Accounts in the percentages as directed on the application at the Accumulation Unit value next computed on that date. The initial and all subsequent premium payments must be sent to our Home Office and will not be made effective until the Date Of Receipt by our Home Office. PLANNED PERIODIC PREMIUM PAYMENTS Planned periodic premium payments may be made at the interval indicated on the Policy Information Page. The failure to follow a planned periodic premium schedule will not in itself cause the policy to Lapse. On the other hand, payment of a planned periodic premium will not guarantee that the policy will remain in effect except as provided under the section entitled "Guaranteed Death Benefit" below. The duration of the policy depends upon the policy's cash value. We will send premium notices, if you request, at 3, 6, or 12-month intervals. All planned periodic premium payments must be paid to us at our Home Office. You may change the amount or frequency of planned periodic premium payments, subject to the maximum premium limitation. PREMIUM CHARGE A Premium Charge is deducted from premium payments to compensate us for sales charges and taxes. This charge is 3% of the premium payment. The Premium Charge is deducted from all premium payments until the total amount of premium paid exceeds the Annual Target Premium Payment multiplied by 10. The Premium Charge is designed so that it will not be applied if the total amount of premium paid exceeds the amount of Annual Target Premium Payments for ten years. If the owner increases or decreases the Specified Amount a new Annual Target Premium Payment will be declared by us for the new Specified Amount. Whether or not the Premium Charge applies will be determined using the new AnnualTarget Premium Payment. GUARANTEED DEATH BENEFIT You have the option to pay planned periodic premium payments based on the Annual Target Premium Payment. If upon any Monthly Anniversary during the first five policy years the total planned and unscheduled premium you have paid, less any partial surrenders is equal to or greater than the Annual Target Premium Payment prorated for the number of Monthly Anniversaries that have occurred since the Policy's Effective Date, then we guarantee that this policy will not lapse on that Monthly Anniversary, even if the cash surrender value is insufficient to pay for the Monthly Deduction and any loan interest then due. This guarantee option is only available during the first five policy years. If the Specified Amount is increased or decreased within the first 5 Policy Years a new Annual Target Premium Payment will be declared by us. This new Annual Target Premium Payment will be used to make the described calculation to determine whether the Guaranteed Death Benefit applies. UNSCHEDULED PREMIUM PAYMENTS Unscheduled premium payments may be made at any time and must be paid to us at our Home Office, subject to the maximum premium limitation. Page 11 MAXIMUM PREMIUM LIMITATION The sum of premiums paid on this policy, both planned and unscheduled, cannot exceed the maximum premium allowed by the Internal Revenue Code, unless the premium is necessary to prevent Lapse. We monitor the amount of the policy's cash value and the amount of life insurance at risk to the Company that is required by the Internal Revenue Code to qualify the policy as life insurance and to exclude the death benefit from the beneficiary's taxable income. If a premium payment will cause the policy not to satisfy Internal Revenue Code requirements we will refund the excess premium payment to you and we will accept no further premium until allowed by the Internal Revenue Code current maximum premium limitation. We may invite you to apply, subject to proof of insurability, to increase the Specified Amount. ALLOCATIONS OF NET PREMIUM PAYMENT Premium payments that are requested to be allocated among the various Accounts under this policy must be allocated in amounts no smaller than one-tenth of a percent, provided that the total amount equals an aggregate of 100 percent. The allocation of subsequent premium payments among the various Accounts under this policy will be made to the same Accounts and in the same proportions as the initial premium payment which is shown on the application. The allocation of subsequent premium payments may be changed by the Owner at any time by sending a written request to our Home Office, or by making a request by telephone. A request to change subsequent premium payment allocations will be effective with the first premium payment received on or following the Date Of Receipt of the request. DATE SUBSEQUENT NET PREMIUM PAYMENTS CREDITED Net Premium Payments after the initial premium payment will be credited to the Accounts under this policy on the Date Of Receipt. Payments to the Variable Fund Accounts under this policy will be credited at the Accumulation Unit value that is next computed on the Date Of Receipt. TRANSFERS You may convey value from one Account to another Account under this policy. This is known as a transfer. Transfers are also subject to the following restrictions. 1) Six free transfers may be made each Policy Year; 2) Additional transfers may be made each Policy Year but are subject to a fee of $25.00 per transfer; 3) The minimum amount that may be transferred from an Account is $250.00; or the entire Account value if the value is less than $250.00; 4) A request for a transfer must clearly state the amount to be transferred, the Account from which it is to be withdrawn, and the Account to which it is to be credited; 5) A transfer may not be made during the first 30 days after the Effective Date; 6) A transfer will result in either the redemption or purchase of Accumulation Units, or both; the transfer will be processed effective at the Accumulation Unit value next computed on the Date Of Receipt of the transfer request; 7) We reserve the right at any time and without prior notice to terminate, suspend, or modify these transfer privileges. ----------------------------------------------------------------------------- Section 8. DEATH BENEFIT PROVISIONS ----------------------------------------------------------------------------- DEATH BENEFIT We will pay the Death Benefit when we receive due proof of death at our Home Office that the Insured has died while this policy is in effect. The Death Benefit will be paid in accordance with the most current Death Benefit Option selected, reduced by any Indebtedness and any due and unpaid Monthly Deductions as set forth in the Grace Period Provision. These proceeds will be increased by any additional optional insurance benefits provided by rider. Page 12 DEATH BENEFIT OPTIONS The policy provides two Death Benefit Options: Option A and Option B. Both Options provide life insurance protection combined with the opportunity to build cash value. Under Option A, the amount of life insurance at risk to the Company decreases as the cash value increases. The total Death Benefit remains level (unless the Minimum Amount Insured applies see Minimum Amount Insured, below). Under Option B, the amount of life insurance at risk to the Company remains level (unless the Minimum Amount Insured applies - see Minimum Amount Insured, below) but the total Death Benefit includes the cash value. See Section 9 for an explanation of how cash value is determined. The Death Benefit Options are: Option A: The Death Benefit is: 1) The Specified Amount; or 2) The Minimum Amount Insured, if greater. Option B: The Death Benefit is: 1) The Specified Amount, plus the policy's cash value; or 2) The Minimum Amount Insured, if greater. MINIMUM AMOUNT INSURED The Minimum Amount Insured means the amount of life insurance required by the Internal Revenue Code to qualify the policy as life insurance and to exclude the Death Benefit from the Beneficiary's taxable income. It is calculated by multiplying the policy's cash value (excluding the amount of any outstanding loan and any unpaid loan interest) by a specified percentage which is based on the Insured's age. The specified percentages are:
AGE PERCENTAGE AGE PERCENTAGE 0-40 250% 61 128% 41 243 62 126 42 236 63 124 43 229 64 122 44 222 65 120 45 215 66 119 46 209 67 118 47 203 68 117 48 197 69 116 49 191 70 115 50 185 71 113 51 178 72 111 52 171 73 109 53 164 74 107 54 157 75-90 105 55 150 91 104 56 146 92 103 57 142 93 102 58 138 94 101 59 134 95 and older 100 60 130
We monitor the amount of the policy's cash value and the amount of life insurance at risk to the Company that is required by the Internal Revenue Code Page 13 to qualify the policy as life insurance and to exclude the Death Benefit from the beneficiary's taxable income. If, prior to the insured's death, unexpected increases in the policy's cash value would cause the policy not to satisfy Internal Revenue Code requirements, we will increase the Death Benefit to the Minimum Amount Insured so that the Death Benefit will be excluded from the beneficiary's taxable income. DEATH BENEFIT OPTION CHANGES After the first Policy Year, you may change the Death Benefit Option by Notice To Us. The new Death Benefit Option must also remain in effect for one year before another change will be allowed. Any change is subject to the following conditions. 1) You may change from Death Benefit Option A to Death Benefit Option B by Notice To Us. The new Specified Amount will be the old Specified Amount less the policy's cash value (excluding the amount of any outstanding loan and any unpaid loan interest) as determined on the Date Of Receipt of the Notice To Us. If you want the new Specified Amount to be the same as the old Specified Amount, the change in Death Benefit Option will be subject to proof of insurability. A change from Death Benefit Option A to Option B will be subject to a remaining $50,000 Specified Amount or $25,000 if the Insured is less than 18 years of age. 2) You may change from Death Benefit Option B to Death Benefit Option A by Notice To Us. The new Specified Amount will be the old Specified Amount increased by the policy's cash value (excluding the amount of any outstanding loan and any unpaid loan interest) next determined on the Date Of Receipt of the Notice To Us. A Change from Option A to Option B or from Option B to Option A will become effective on the next Monthly Anniversary on or following the date the change is approved by us. SPECIFIED AMOUNT CHANGES You may change the Specified Amount by Notice To Us. Any change is subject to the following conditions: 1) Any increase will require proof of the Insured's insurability and must be applied for on a written application. The application for any increase will be attached to and made part of this policy. 2) Any increase must not be less than $25,000 unless made in conjunction with a change in death benefit option or to satisfy Internal Revenue Code requirements. 3) Any decrease will be applied against the most recent increase. 4) A decrease will not be allowed that results in a Specified Amount of less than $50,000 or $25,000 if the Insured is less than 18 years of age, other than a decrease resulting from a partial surrender of cash value under Option A. Increases in Specified Amount will become effective on the next Monthly Anniversary on or following the date the increase is approved by us. Decreases in Specified Amount will become effective on the next Monthly Anniversary on or following the Date Of Receipt of the Notice To Us. ----------------------------------------------------------------------------- Section 9. CASH VALUE AND POLICY CHARGES ----------------------------------------------------------------------------- GENERAL DESCRIPTION Net Premium Payments are invested in the Variable Fund Accounts under this policy to build cash value. The net premium that you allocate to a Variable Fund Account is invested by the Company through the Separate Account that we have established to purchase shares of the corresponding Fund at their Net Asset Value. Your value in the Variable Fund Accounts will fluctuate and vary based on the investment experience of the corresponding Fund. In addition to the charges made under this policy that are discussed in this section, there are expenses that apply at the corresponding Fund level. Please read the Fund prospectus for a complete understanding of all expenses. Page 14 CASH VALUE The policy's cash value will vary on a daily basis with the investment experience of the selected Accounts to which you are allocating Net Premium Payments. The cash value will also vary to reflect the amount and frequency of Net Premium Payments, the effect of any partial surrenders, the effect of any loans, and the charges and deductions made under this policy. There is no minimum guaranteed cash value. The cash value of this policy on the Effective Date is the Net Premium Payment less the Monthly Deduction for the following month. Thereafter, the cash value on any Valuation Date will equal the sum of the policy's value in each Variable Fund Account plus any value held in the Company's general account to secure a loan plus any interest earnings credited on the value held in the loan account less the amount of any outstanding loan including any unpaid interest and less any Monthly Deductions, transfer charges, and partial surrender charges applied through that date. (See Section 13 Loan Provisions.) On each Monthly Anniversary, the Monthly Deduction will reduce the cash value. The amount of Monthly Deduction taken from the Account(s) will be in the same proportion as each Account(s) cash value has to the total policy cash value. THE SEPARATE ACCOUNT The Separate Account is an investment account established under Texas law through which USAA Life Insurance Company invests the Net Premium Payments received for investment in the Variable Fund Accounts under this policy. The Separate Account is divided into subdivisions called the Variable Fund Accounts under this policy. Each Variable Fund Account invests the Net Premium Payments allocated to it in a particular Fund. The assets of the Separate Account are owned by USAA Life Insurance Company. To the extent that the assets are equal to the reserves and other contractual liabilities, they are not chargeable with liabilities arising out of any other business of the Company. The income, gains, and losses, realized or unrealized, from the assets of the Separate Account are credited or charged against the Separate Account without regard to other income, gains or losses of the Company. The assets of the Separate Account shall be valued at the end of each Valuation Date. The Separate Account is registered as an investment company under federal securities law. YOUR VALUE IN VARIABLE FUND ACCOUNTS At the end of each Valuation Date, the Accumulation Unit value for each Variable Fund Account is computed. Your value in a Variable Fund Account is determined by multiplying the number of Accumulation Units credited to that Variable Fund Account by the value of the Accumulation Unit as of the end of any Valuation Date. Accumulation Units are credited to a Variable Fund Account under this policy when you pay us premium and allocate it to the particular Variable Fund Account. The number of Accumulation Units credited to a Variable Fund Account under this policy is determined by dividing the Net Premium Payment credited to the Account by the Account's Accumulation Unit value next computed on the Date Of Receipt of the premium payment. Each Variable Fund Account's Accumulation Units are valued separately. The Accumulation Unit value of a Variable Fund Account as of the end of any Valuation Date is calculated as (1) multiplied by (2) where: (1) Is the Accumulation Unit value for the Account as of the end of the immediately preceding Valuation Period; and (2) Is the Net Investment Factor for the Valuation Period ending on that Valuation Date. Your value in a Variable Fund Account is also reduced by any values you have withdrawn or transferred and less any Monthly Deductions, transfer charges, and partial surrender charges applied through that date. You may learn what the daily value of an Accumulation Unit is and the number of units credited to the Variable Fund Accounts under your policy by contacting our Home Office. Page 15 NET INVESTMENT FACTOR The net investment factor is an index number that reflects charges to this policy and investment performance during a Valuation Period. The net investment factor for a Variable Fund Account is determined by dividing (1) by (2), and then subtracting (3) from the result, where: (1) Is the net result of: (a) The Net Asset Value per share of the Fund shares held in the corresponding Variable Fund Account determined at the end of the current Valuation Period; (b) Plus the per share amount of any dividend or capital gain distributions made on the Fund shares held in the corresponding Variable Fund Account during the current Valuation Period; (c) Plus or minus a per share credit or charge for that current Valuation Period for any decrease, or increase, in any income taxes reserved that we determine has resulted from the investment operations of the particular Variable Fund Account or any other taxes which are applicable to this contract. (2) Is the Net Asset Value per share of the Fund shares held in the corresponding Variable Fund Account determined at the beginning of the current Valuation Period. (3) Is a factor representing the mortality and expense risk. The annual charge rate is .75%. We may lower this charge at our discretion but we guarantee that it will not be raised. MONTHLY DEDUCTION The Monthly Deduction on each Monthly Anniversary shall be calculated as (1) plus (2) plus (3) where: (1) is the cost of the amount of insurance at risk to the Company and the cost for any policy riders; (2) is the Administrative Charge, which is a flat charge per policy that is applied only during the first 12 months that this policy is in effect; and (3) is the Maintenance Charge, which is a flat charge per policy. The first-year monthly Administrative Charge and the policy Maintenance Charge are set forth on the Policy Information Page. PREMIUM CHARGE A Premium Charge of 3% is deducted from premium payments to compensate us for sales charges and taxes related to this policy. The resulting Net Premium Payment is then allocated to the Variable Fund Account(s). See Section 7 Premium Provisions for an explanation of when this charge will not be made. MORTALITY AND EXPENSE CHARGE Certain charges are deducted on a daily basis from the net assets of the Variable Fund Accounts. These charges have an effect on the policy's cash value: 1) a daily charge of .00204% (equal to .75% annual rate) for the mortality and expense risks assumed by us; and, 2) if necessary, a charge for federal income taxes attributable to the Separate Account. FULL SURRENDER CHARGE While the Insured is living and the policy is in force, the Owner may surrender the policy in full for its cash value. If the policy is surrendered in full, the amount payable may reflect a deduction for the Surrender Charge. The net amount that you would receive is the policy's cash surrender value. Page 16 The purpose of the Surrender Charge is to compensate the Company for expenses incurred in the distribution of the policies. If assessed upon the surrender of the policy, the Surrender Charge reduces the amount paid to the owner. The amount of the Surrender Charge is based upon the Specified Amount and the Annual Target Premium Payment. The Surrender Charge declines each policy year and is eliminated after the policy has been in effect 10 Policy Years. If the policy is surrendered during a Policy Year, the Surrender Charge is determined by multiplying the applicable percentage for a surrender during that policy year times the Annual Target Premium Payment. The Surrender Charge is based upon the Policy Year in which the policy is surrendered and the amount of the Annual Target Premium Payment. If the Specified Amount is increased or decreased within the first 10 policy years, a new Annual Target Premium Payment will be declared by us. This new Annual Target Premium Payment will be used to make the described calculation to determine whether the Surrender Charge applies. The applicable percentage for a surrender of the policy during a policy year is determined as follows:
If the Policy is Surrendered During Applicable Percentage ----------------------------------- --------------------- Policy Year 1 50% Policy Year 2 45% Policy Year 3 40% Policy Year 4 35% Policy Year 5 30% Policy Year 6 25% Policy Year 7 20% Policy Year 8 15% Policy Year 9 10% Policy Year 10 5% Policy Year 11 & thereafter 0%
For example, if the Annual Target Premium Payment was $2,000 and the policy was surrendered in full during the first Policy Year, the Surrender Charge would be determined by multiplying 50% times $2,000 or 50% X 2,000 = $1,000. Thus, in this example the Surrender Charge would be $1,000. PARTIAL SURRENDER (WITHDRAWAL) CHARGES The amount of cash value you may obtain through a partial surrender is limited. The policy's remaining cash value after a partial surrender may not be less than an amount equal to the then current Surrender Charge for a full surrender. For each partial surrender of cash value, there is an administrative fee equal to the lesser of $25.00 or 2% of the amount withdrawn. TRANSFER CHARGE You may transfer value from a Variable Fund Account to another Variable Fund Account six times during a Policy Year without a charge. Additional transfers may be made subject to a charge of $25.00 per transfer. Page 17 COST OF INSURANCE The cost of insurance is calculated on each Monthly Anniversary. First, we divide the death benefit on the Monthly Anniversary by a factor that discounts the Death Benefit to the beginning of the month, and then we subtract the cash value. Cash value, in this instance, is cash value at the beginning of the month prior to deductions for cost of insurance. We divide the resulting amount by 1000 and multiply that result by the applicable cost of insurance rate. COST OF INSURANCE RATE The cost of insurance rates for each Specified Amount are based on the Insured's age, sex and rate class. Current costs of insurance rates are based on our expectations as to future mortality experience. Any changes to cost of insurance rates will apply to all persons of the same age, sex and rate class. We guarantee that the cost of insurance rates will never be greater than those shown in the Table of Monthly Guaranteed Cost of Insurance Rates in this policy. These guaranteed rates are based on the 1980 Commissioners Standard Ordinary Mortality Table. INSUFFICIENT CASH VALUE If the cash value, on the Monthly Anniversary is insufficient to cover the Monthly Deduction for the following month, and any loan interest then due, the policy and all benefits provided by rider will end as provided in the Grace Period Provision. Any deduction for the cost of insurance after Lapse shall not be considered a reinstatement of the policy (or of any benefit provided by rider) nor a waiver by us of the Lapse. ----------------------------------------------------------------------------- Section 10. AVAILABILITY OF FUNDS AND VOTING RIGHTS ----------------------------------------------------------------------------- A Fund may, in our judgment, become unsuitable for investment by an Account. This might happen because of a change in investment policy, because of a change in laws or regulations, because the shares are no longer available for investment, or for some other reason. We reserve the right, subject to compliance with federal and state law, to eliminate or merge any Funds that are made available through this policy and possibly substitute another Fund if, in our judgement, further investment in the Fund becomes undesirable in view of the purposes of this policy. We may add new Variable Fund Accounts under this policy to permit investment in additional Funds. We will give you written notice of the addition, elimination, merger or substitution of any Fund as required by law. If required we would first notify and receive approval from the United States Securities and Exchange Commission ("S.E.C.") and the Texas Insurance Department. This approval process is on file with the insurance commissioner of the state where this policy is delivered. If the S.E.C. requires that such action receive approval from a majority of the policyholders in the Account, then you will be notified of your right to vote. You will be notified of any material change in the investment policy of any Fund in which you have an interest. You have voting rights in relation to your value maintained in the Variable Fund Accounts. We will vote shares of the underlying Funds in which the Variable Fund Accounts invest and that are attributable to Owners in the manner instructed by Owners. Owners may give instructions equal to the number of shares represented by the Units attributable to their Variable Fund Accounts. We will vote such shares held by the Variable Fund Accounts that are either (i) not attributable to Owners, or (ii) attributable to Owners and for which we have not received instructions, in the same manner and proportion as such shares for which we have received instructions. However, we may vote any shares of the underlying Funds without regard to instructions from Owners, and in our own right, where (i) applicable law specifically permits or (ii) we Page 18 determine, based on our interpretation, that applicable law permits. In all cases, we will vote separately for each Fund that corresponds to a Variable Fund Account where required by applicable law or appropriate. The number of votes for an underlying Fund will be determined as of the record date for such Fund as chosen by its board of trustees or board of directors. We will furnish Owners with proper forms and voting instruction forms to enable them to instruct us how to vote. You may instruct us how to vote on the following matters: (a) election of the board of trustees or board of directors, as applicable; (b) approval of the investment advisory agreement; (c) ratification of the independent auditing firm; (d) any change in the fundamental investment policy; and (e) any other matter requiring a vote of the shareholders. ----------------------------------------------------------------------------- Section 11. POLICY SURRENDER AND PARTIAL SURRENDERS ----------------------------------------------------------------------------- FULL SURRENDER You may surrender this policy for its entire cash value, upon Notice To Us. A Surrender Charge may be deducted by the Company pursuant to the Full Surrender Charge provision in Section 9. The net amount that you would receive is the policy's cash surrender value. We may require the return of your policy. The policy and all insurance will terminate as of the Date Of Receipt of your request for full surrender. PARTIAL SURRENDERS (WITHDRAWALS) After the first policy year, you may surrender a part of this policy. A partial surrender is subject to any Indebtedness. You may direct how a partial surrender should be withdrawn from the current value of the Account(s). If no withdrawal allocation is specified, the partial surrender will be withdrawn from the Account(s) in the same proportion as each Account's value has to the total policy cash value. Partial surrenders will reduce the policy's death benefit on a dollar for dollar basis. A partial surrender under Option A reduces the Specified Amount dollar for dollar and also reduces the cash value dollar for dollar. Under Option B a partial surrender reduces the cash value dollar for dollar but the Specified Amount remains constant. In those instances where the death benefit is the Minimum Amount Insured, the decrease in death benefit will be equal to the partial surrender multiplied by the appropriate specified percentage. A fee for administrative processing equal to the lesser of $25.00 or 2% of the amount withdrawn will be charged for all partial surrenders. This fee will be deducted from the affected Accounts in the same proportion as the amount withdrawn from an affected Account bears to the total amount withdrawn from all Accounts. DETERMINATION AND PAYMENT OF VARIABLE BENEFITS We will make payments under this policy as follows: 1) Full surrenders and partial surrenders of cash value will usually be paid within seven days after receipt of your written request at our Home Office. The cash value available will be determined at the Accumulation Unit value that is next computed on the Date Of Receipt of the surrender request. Partial surrenders are not allowed during the first Policy Year. 2) Loans will usually be paid within seven days after receipt of your written request at our Home Office. The loan value available will be determined as of the Date Of Receipt of your loan request. Policy loans are not allowed during the first Policy Year. 3) Benefits at maturity will usually be paid within seven days after the Valuation Date on which this policy matures. 4) The death benefit will usually be paid within seven days after receipt at our Home Office of due proof of the Insured's death and all other requirements necessary to make payment. The cash value portion of the death benefit will be determined as of the Valuation Date immediately following the date of death. Page 19 POSTPONEMENT OF PAYMENTS We may not be able to determine the value of assets of the Accounts if: (1) the New York Stock Exchange is closed; (2) the S.E.C. requires trading to be restricted or declares an emergency; or (3) the S.E.C., by order, permits us to defer payments for the protection of our policyowners. During such times we may defer: 1) determination of Account values; 2) payment of such values; 3) payment of loans; 4) any requested transfer of Account values; and 5) use of the death benefit under the Settlement Options. Requests for partial surrenders, full surrenders, loans or refunds which would be derived from a premium payment made by a check may be deferred until the check has cleared the banking system. ----------------------------------------------------------------------------- Section 12. GRACE AND REINSTATEMENT PERIODS ----------------------------------------------------------------------------- GRACE PERIOD On any Monthly Anniversary when the cash value, is less than the Monthly Deduction for the following month and any loan interest then due, a grace period will begin. During the grace period, you must send us enough premium to cover three Monthly Deductions and any loan interest due. We will notify you, and any assignee of record, of the grace period expiration date. The grace period is 61 days and will begin on the date this notice is mailed to you. If the premium described above is not paid within the grace period, all insurance, including benefits provided by rider, terminates, and a Lapse has occurred. If the Insured dies during the grace period, the death benefit, less any due and unpaid Monthly Deduction(s) and any loan interest due through the month of death, will be paid to the Beneficiary. If you have paid sufficient premium for the Guaranteed Death Benefit to apply the policy may not necessarily Lapse during the first five Policy Years. See the Guaranteed Death Benefit provision in Section 7 for an explanation of how much premium must be paid for the benefit to apply. REINSTATEMENT If a Lapse of this policy occurs, you may apply for reinstatement within five years and before the Maturity Date. We require the following: 1) proof of insurability satisfactory to us; 2) a written application for reinstatement; 3) payment of premium sufficient to pay the Monthly Deductions for at least three months beginning with the effective date of reinstatement; and 4) payment of, or agreement to reinstate, any Indebtedness. The effective date of the reinstated policy will be the Monthly Anniversary on or before the approval date of reinstatement. The Suicide and Incontestability provisions will apply from the effective date of reinstatement. If the policy has been in force for two years during the lifetime of the Insured, it will be contestable only as to statements made in the reinstatement application. If the policy has been in force for less than two years, it will be contestable as to statements made in any reinstatement applications as well as the initial application. Page 20 ----------------------------------------------------------------------------- Section 13. LOAN PROVISIONS ----------------------------------------------------------------------------- LOANS This policy may have a cash value. After this policy has been in effect one year, you may take a loan against the cash value using this policy as the sole security for the loan. The maximum amount that you may borrow at any time is the loan value. The maximum loan value is 85% of the cash value available to you assuming a full surrender of the policy. You may request a loan at any time by Notice To Us or telephone request. The portion of the cash value equaling the amount of the loan will be withdrawn from the Account(s) and transferred to the Company's general account consisting of all its other assets and liabilities. LOAN ALLOCATION You may allocate how an amount equal to the amount of the loan should be withdrawn from the current value of the Account(s). If no allocation is specified, the value in the amount of the loan will be withdrawn from the Account(s) in the same proportion as each Account's value has to the total policy cash surrender value. Values will be determined as of the Date Of Receipt of the loan request. LOAN INTEREST You are charged interest on the loan at a maximum annual rate of 6% payable in advance. We have the option of charging less. For policies that have been in effect more than 10 Policy Years and if the Insured is 55 or older, we charge a preferred loan interest rate of 4.5%. We have the option of charging less for a preferred loan. The entire amount of interest on your loan balance for each Policy Year is payable in advance at the commencement of the loan and at the beginning of each Policy Year thereafter. We will automatically deduct the interest from your Account(s) in the same proportion as the loan amount was withdrawn from the Account(s). If there is insufficient value in your Account(s) to pay the interest in advance, we will add the amount of any unpaid interest to the amount of the loan, and will charge the same rate of interest. Because interest is paid in advance, loan repayments during a Policy year may result in an overpayment of interest. We will credit any overpayment of interest to you on the date of any loan repayment. LOAN REPAYMENT A loan may be repaid in full or in part at any time before the Insured's death and while the policy is in effect. If not repaid, we will deduct the Indebtedness from the death benefit, the benefit at maturity, or a full surrender. Loans and unpaid loan interest in existence at the end of a grace period may not be paid until the policy is reinstated. You may direct how a loan repayment should be allocated among each Account. If no allocation is specified, the loan repayment will be allocated to the Account(s) in the same proportion as Net Premium Payments are being allocated to the Account(s). EFFECT OF LOAN A loan will reduce the value of the Account(s) from which it is deducted. Thus, the amount loaned will not share in the investment experience of the Account(s). The unpaid amount of the loan and any accrued interest withdrawn from you Account(s) will however earn interest and will be credited on a daily basis with an effective annual rate of 4%. A loan, whether repaid or not, will have a permanent effect on the cash value of the policy. Page 21 ----------------------------------------------------------------------------- Section 14. SETTLEMENT OPTIONS ----------------------------------------------------------------------------- Instead of having the death benefit paid immediately to the Beneficiary(s) in one lump sum, you may choose another form of payment for all or part of the death benefit. If you do not arrange for this before the Insured dies, the Beneficiary will have this right after the Insured dies. Arrangements made by you before the Insured's death, however, cannot be changed by the Beneficiary after the Insured's death. The options are: 1) INTEREST ONLY OPTION: The principal amount may be left on deposit with us for a mutually determined period not to exceed 30 years. Interest payments will be paid at mutually determined regular intervals. The principal amount will earn interest at a minimum rate of 3% compounded annually. At the end of the final period, the principal amount will be paid. 2) INSTALLMENT OPTIONS: A. FIXED PERIOD: The principal amount plus interest will be paid in equal or unequal installments for a specified number of years (not more than 30). The installments will not be less than those shown in the Table of Guaranteed Payments. (See Section 15.) B. FIXED AMOUNT: The principal amount plus interest will be paid in equal or unequal installments, as mutually agreed upon until the amount applied, together with interest on the unpaid balance, has been paid in full. 3) OTHER: We will apply the sum under any other option requested that we make available at the time of the Insured's death. The Beneficiary may designate a successor payee as to any amount that we would otherwise pay to the Beneficiary's estate. Any arrangements involving more than one of the options, or involving a Beneficiary who is not a natural person (for example, a corporation) or who is a fiduciary (for example, a trustee), must have our approval. Also, details of all arrangements will be subject to our rules at the time the arrangement takes effect. Amounts applied under these options will not be subject to the claims of creditors or to legal process, to the extent permitted by law. Page 22 ----------------------------------------------------------------------------- Section 15. TABLE OF GUARANTEED PAYMENTS -----------------------------------------------------------------------------
(MINIMUM LEVEL AMOUNT FOR EACH $1,000 OF PROCEEDS) Years Monthly Payment Years Monthly Payment 1 84.47 16 6.53 2 42.86 17 6.23 3 28.99 18 5.96 4 22.06 19 5.73 5 17.91 20 5.51 6 15.14 21 5.32 7 13.16 22 5.15 8 11.68 23 4.99 9 10.53 24 4.84 10 9.61 25 4.71 11 8.86 26 4.59 12 8.24 27 4.47 13 7.71 28 4.37 14 7.26 29 4.27 15 6.87 30 4.18
Page 23 [USAA Logo] USAA LIFE INSURANCE COMPANY 9800 Fredericksburg Road San Antonio, TX 78288 THE DEATH BENEFIT OF THIS POLICY MAY BE VARIABLE AS TO THE AMOUNT OR DURATION, OR BOTH, DEPENDING UPON THE DEATH BENEFIT OPTION SELECTED AND THE INVESTMENT EXPERIENCE OF THE SEPARATE ACCOUNT, BUT SHALL NEVER BE LESS THAN THE SPECIFIED AMOUNT SUBJECT TO ANY POLICY INDEBTEDNESS AND PARTIAL SURRENDERS AS LONG AS THERE IS SUFFICIENT CASH VALUE TO KEEP THE POLICY IN EFFECT. See Sections 8 & 9. THE CASH VALUE OF THIS POLICY WILL VARY FROM DAY TO DAY. IT MAY INCREASE OR DECREASE DEPENDING ON THE INVESTMENT EXPERIENCE OF THE SEPARATE ACCOUNT. IT IS NOT GUARANTEED AS TO DOLLAR AMOUNT. VARIABLE UNIVERSAL LIFE INSURANCE PLAN FLEXIBLE PREMIUMS PAYABLE DURING LIFETIME OF INSURED UNTIL MATURITY DATE. VARIABLE DEATH BENEFIT PAYABLE PRIOR TO MATURITY DATE. CASH VALUE PAYABLE ON MATURITY DATE. INVESTMENT EXPERIENCE REFLECTED IN BENEFITS. NON-PARTICIPATING POLICY. Page 24 USAA LIFE INSURANCE COMPANY ACCELARATED BENEFIT FOR TERMINAL ILLNESS RIDER ----------------------------------------------------------------------------- RIDER AGREEMENT ----------------------------------------------------------------------------- THE BENEFIT The Company will make an accelerated benefit payment to the Owner of the policy prior to the Maturity Date upon receipt of proof that the Insured is terminally ill as defined below. The accelerated benefit payment plus accrued interest and unpaid premium will be treated as a lien against the Death Benefit and will reduce the amount payable to the beneficiary at the Insured's death. The maximum accelerated benefit payment that will be made is the lesser amount of (1) one half of the current Death Benefit, excluding additional benefits payable under rider, or (2) $250,000 under all life insurance insuring the life of the insured issued by the Company and its affiliates. Before this benefit is paid to the Owner an amount equal to any outstanding loan and unpaid interest will be deducted from the benefit amount and applied to pay the Company. We must receive a written request by the Owner for an accelerated benefit payment. PROOF OF TERMINAL ILLNESS A terminal illness is an illness which is expected to result in the Insured's death within 12 months from the Owner's request for early payment. We will require the Owner to provide the certification of a licensed physician, who is not the Owner, Insured or a member of either's family, describing the Insured's health condition and stating that the Insured's life expectancy is 12 months or less. We reserve the right to obtain a second opinion at our expense. GENERAL PROVISION The terms and conditions of the policy apply to this rider. Where the terms or conditions of the policy are inconsistent with those of this rider, the rider prevails. This rider is non-participating, does not share in the Company's profits or surplus earnings, and has no cash value. TERMINATION This rider will terminate upon the policy's termination. This rider is issued and attached to the policy by USAA Life Insurance Company, San Antonio, Texas. Effective Date of this rider if other than effective date of policy: ________. ___________________________ Edwin L. Rosane - President USAA LIFE INSURANCE COMPANY ACCIDENTAL DEATH BENEFIT RIDER ----------------------------------------------------------------------------- RIDER AGREEMENT ----------------------------------------------------------------------------- USAA LIFE INSURANCE COMPANY, for consideration received, shall pay the applicable accidental death benefit, subject to the conditions and limitations below. This rider is issued in consideration of the application for the rider and the future payment of the additional cost of insurance for this rider. The application is attached to and made part of this rider. ----------------------------------------------------------------------------- RIDER BENEFITS AND EXCLUSIONS ----------------------------------------------------------------------------- ACCIDENTAL DEATH BENEFIT The amount of accidental death benefit is the amount selected by the applicant and approved by the Company. The company will pay this amount to the beneficiary upon receipt of due proof that: 1. The death of the Insured resulted directly and independently of all other causes from bodily injury effected solely through external, violent, and accidental means as evidenced by a visible contusion or wound on the exterior of the body (except in case of drowning or internal injuries revealed by an autopsy); and 2. Death occurred within 90 days of such injury; and 3. Death occurred while the policy and this rider were in force; and 4. Coverage was not excluded under the "Exceptions and Exclusions" provision below. BENEFICIARY Unless otherwise directed in writing this benefit will be paid: 1. To the beneficiary under the policy; and 2. In the same manner as the proceeds of the policy. EXCEPTIONS AND EXCLUSIONS This accidental death benefit will not be paid if the Insured's death results directly or indirectly from, or is contributed to, by any of the following causes: 1. Intentionally self-inflicted injury or suicide, while sane or insane; or 2. Bodily or mental infirmity, illness or disease, or medical or surgical treatment therefor; or 3. Any infection not occurring as a direct consequence of an accidental bodily injury; or 4. War (declared or not), or any act or incident thereto, while the Insured is in the armed forces; or 5. Participation in or commission of a felony or an assault; or 6. Participation in a riot; or 7. The unprescribed use of drugs or narcotics; or 8. Travel or flight in or descent from or with any aircraft UNLESS the Insured is a passenger with no flight duties; or 9. Travel or flight in or descent from or with any spacecraft or space vehicle of any type. ----------------------------------------------------------------------------- GENERAL PROVISIONS ----------------------------------------------------------------------------- COST OF INSURANCE The cost of insurance for this rider is in addition to the cost of insurance for the policy and is due on the same date. The cost of insurance for this rider will be payable until the Expiration Date of this rider unless the death of the Insured occurs prior to that time. In such event, no further payment is due. REINSTATEMENT This rider may be reinstated under the same terms and conditions as the policy to which it is attached. The insured must be living on the date the rider is reinstated. WAIVER OF MONTHLY DEDUCTION If the policy provides for the Waiver of Monthly Deduction benefit, such benefit will also apply to this rider. Otherwise, no such benefit exists under this rider. POLICY PROVISIONS This rider is attached to and is part of the policy. The terms and conditions of the policy apply to this rider. Where such terms and conditions are inconsistent, the rider prevails with respect to rider benefits. The policy, any riders, and the application(s) form the entire contract. INCONTESTABILITY The Company will not contest this rider for any reason, other than nonpayment of the cost therefor or fraud after it has been in force for two years during the lifetime of the Insured. For any increase in coverage under this rider, such two-year period begins on the Effective Date of the increase. MISSTATEMENT OF AGE If the age of the Insured was not correctly stated when this rider was issued, the Company will adjust the benefits to the correct amount at the time of death of the insured. This means that the benefits of this rider will be changed to that which the premium would have purchased at the correct age. CHANGE IN COVERAGE Anytime after the Effective Date of this rider, the amount of the accidental death benefit may be changed. Any change will be subject to the following conditions: 1. A written request must be submitted to the Company; 2. The new amount may not exceed the current death benefit of the policy; and 3. For any increase, an application and evidence of insurability satisfactory to the Company must be submitted. DIVIDENDS This rider will not share in any of the Company's profits or surplus earnings. VALUES This rider has no cash value, surrender value, or loan value. 2 AUTOPSY Unless prohibited by law, the Company shall have the right to examine the body and make an autopsy at the Company's expense. ----------------------------------------------------------------------------- TERMINATION OF RIDER ----------------------------------------------------------------------------- This rider will terminate on the earliest of: 1. The policy anniversary date after the Insured's 65th birthday; or 2. The rider's Monthly Anniversary date after a written request for termination is received by the Company; or 3. The date the policy otherwise terminates. ----------------------------------------------------------------------------- EFFECTIVE DATE ----------------------------------------------------------------------------- The Effective Date of this rider will be: 1. The Effective Date of the policy, unless a later date is shown below; or 2. The date of any approved increase in the accidental death benefit amount; or 3. The Monthly Anniversary date after written request to decrease benefits is received by the Company. This rider is issued and attached to the policy by USAA Life Insurance Company, San Antonio, Texas. Effective Date of this rider if other than effective date of policy: ________. ___________________________ Edwin L. Rosane - President 3 USAA LIFE INSURANCE COMPANY CHILDREN TERM LIFE INSURANCE RIDER ----------------------------------------------------------------------------- RIDER AGREEMENT ----------------------------------------------------------------------------- USAA LIFE INSURANCE COMPANY, for consideration received, will provide level term life insurance on any Insured Child and shall pay the amount of life insurance, subject to the conditions and limitations below. This rider is issued in consideration of the application and the future deduction of cost for this rider. ----------------------------------------------------------------------------- DEFINITIONS ----------------------------------------------------------------------------- For purposes of this rider, the following definitions apply: 1. The Insured is the person insured under the policy to which this rider is attached. 2. An Insured Child is: a. Any child, stepchild, or legally adopted child of the Insured, provided such individual is listed in the application for this rider, and also provided that the child is under 18 years of age at the time of application; b. Any child subsequently born of the marriage of the Insured, provided the child is born alive; c. Any child subsequently adopted by the Insured, provided the child is under 18 years of age at the time of adoption. 3. The Expiration Date is the rider anniversary following the Insured's 70th birthday, or the rider anniversary following the youngest Insured Child's 25th birthday, whichever is earlier. ----------------------------------------------------------------------------- BENEFITS ----------------------------------------------------------------------------- USAA Life Insurance Company will provide the following benefits upon receipt of due proof that death occurred while this rider is in force. BENEFIT A. ON DEATH OF AN INSURED CHILD If any Insured Child dies during the first 13 days of life, we will pay the sum of $2,000.00. This benefit is not payable for a stillbirth or a fetus that is aborted. If an Insured Child dies on the 14th day of life or later, and during the term of this insurance, we will pay the Amount of Insurance that has been selected and approved. We will pay the benefit to: 1. The Insured, if living; otherwise 2. The estate of the Insured Child; or 3. As otherwise stated in the application. BENEFIT B. ON DEATH OF INSURED Upon death of the Insured, coverage will continue as paid-up level term life insurance on any living Insured Child until the rider anniversary following the child's 25th birthday. This paid-up term life insurance may be converted as provided in this rider. The paid-up term life insurance provided under this benefit will have cash value. If this insurance is surrendered, we will pay the cash value. The cash value is equal to the Net Single Premium for the paid-up insurance. Calculations are based on the Commissioner's 1980 Standard Ordinary Mortality Table with interest at 4-1/2% per year. The cash value of the paid-up term insurance, on the rider anniversary and 30 days thereafter, will not be less than the present value (on the anniversary) of the future benefits provided by the rider. ----------------------------------------------------------------------------- TERM OF INSURANCE ----------------------------------------------------------------------------- The insurance on an Insured Child will end on the rider anniversary following the child's 25th birthday. ----------------------------------------------------------------------------- PREMIUM PROVISIONS ----------------------------------------------------------------------------- COST FOR RIDER The cost for this rider is in addition to the cost for the policy. The cost for this rider will be deducted from the cash value of the policy on the same dates as the monthly deduction for the policy. The cost for the rider will be deducted until the Expiration Date of the rider unless the death of the Insured occurs prior to that time. In such event, no further cost for this rider is due. REINSTATEMENT This rider may be reinstated under the same terms and conditions as the policy to which it is attached. All persons to whom the reinstated coverage applies must be living on the date the rider is reinstated. WAIVER OF MONTHLY DEDUCTION If the policy provides for a Waiver of Monthly Deduction Benefit, it will also apply to this rider. Otherwise, no such benefit exists under this rider. ----------------------------------------------------------------------------- GENERAL PROVISIONS ----------------------------------------------------------------------------- POLICY PROVISIONS The terms and conditions of the policy apply to the rider. Where the terms or conditions of the policy are inconsistent with those of the rider, the rider prevails. The policy, the rider, and the applications(s) form the entire contract. INCONTESTABILITY The Company will not contest this rider for any reason other than for non-payment of the cost for it or fraud after it has been in force for two years during the lifetime of any child named in the original application who is insured by this rider. SUICIDE EXCLUSION If the Insured, while sane or insane, commits suicide during the first two years the rider is in force, the only benefit payable will be an amount equal to the total cost for the rider deducted prior to the date of death. The two-year period begins on the Effective Date of the rider. An Insured Child may immediately apply for conversion. DIVIDENDS This rider is non-participating and will not share in any of the Company's profits or surplus earnings. VALUES This rider has no cash value, surrender value, or loan value except as provided under Benefit B. 2 ----------------------------------------------------------------------------- CONVERSION PRIVILEGE ----------------------------------------------------------------------------- The term insurance on the life of any Insured Child may be converted to any form of permanent life insurance that we write. We will not require proof of insurability to convert. The amount of insurance under the new policy must be at least the minimum amount we require for the plan chosen and may be up to four times the amount of insurance on an Insured Child under this Rider. The amount of insurance may not, however, exceed a combined total of $100,000 under all policies issued by USAA Life Insurance Company pursuant to any rider conversion privilege. An application to convert the term insurance on the life of any Insured Child may only be made during the 60-day period immediately preceding: 1. The rider anniversary following an Insured Child's 25th birthday; or 2. The rider anniversary following the Insured's 70th birthday; whichever occurs first. Application to convert may be made only within this 60-day period. The new policy will be issued in the same mortality risk class as the insurance being converted. The premium charged will be our published rate for the person to be insured as of the date of conversion. Only the amount of term insurance on an Insured Child under this Rider will be converted without proof of insurability. Any additional insurance benefits requested to be part of the new policy must be applied for and receive our underwriting approval. The requirements to convert are: 1. Written application from the person to be insured; and 2. Payment of the first premium for the new policy. For conversion to be effective, we must receive these requirements during the lifetime of the person to be insured and before the date the insurance being converted will terminate. ----------------------------------------------------------------------------- TERMINATION OF RIDER ----------------------------------------------------------------------------- Except as provided in Benefit B., this rider will terminate on the earliest of: 1. The rider anniversary following the Insured's 70th birthday; or 2. The rider anniversary following the youngest Insured Child's 25th birthday; or 3. The expiration of the Grace Period for unpaid cost for this rider or the policy; or 4. The date the policy is surrendered or otherwise terminated. This rider is issued and attached to the policy by USAA Life Insurance Company, San Antonio, Texas. Effective Date of this rider if other than effective date of policy:_________. ___________________________ Edwin L. Rosane - President 3 USAA LIFE INSURANCE COMPANY EXTENDED MATURITY DATE RIDER ----------------------------------------------------------------------------- RIDER AGREEMENT ----------------------------------------------------------------------------- The policy is issued to mature on the Monthly Anniversary, as defined in the policy, following the Insured's 100th birthday. Prior to the policy's Maturity Date the Owner may request an extension of the policy's Maturity Date. An extension of the policy's Maturity Date is subject to the Company's approval. If the policy is extended beyond its original Maturity Date, the Owner is responsible for any and all federal income tax consequences. This rider is attached to and is part of the policy. The terms and conditions of the policy apply to this rider except where they are inconsistent with this rider. Where the terms and conditions are inconsistent, the rider prevails. The rider is issued and attached to the policy by USAA Life Insurance Company, San Antonio, Texas. Effective Date of this rider if other than effective date of policy:_________. ___________________________ Edwin L. Rosane - President USAA LIFE INSURANCE COMPANY RIDER PROVIDING FOR WAIVER OF MONTHLY DEDUCTION IN EVENT OF TOTAL PERMANENT DISABILITY ----------------------------------------------------------------------------- RIDER AGREEMENT ----------------------------------------------------------------------------- USAA LIFE INSURANCE COMPANY, for consideration received, will waive the Monthly Deduction for the policy and any attached riders, as provided. While this rider is in force, we will waive the Monthly Deduction that becomes due after the beginning of, and during the continuance of, the total and permanent disability of the Insured only if the Insured has been totally and permanently disabled as defined in this rider for at least six consecutive months. The amount of any Monthly Deduction waived under this rider will not be deducted from the Death Benefit at the time of settlement of the policy. ----------------------------------------------------------------------------- DEFINITION OF TOTAL AND PERMANENT DISABILITY ----------------------------------------------------------------------------- Total and permanent disability, for purposes of this rider, means: 1. That it is due solely to sickness or injury, and begins prior to the Insured's attaining age 60; and 2. That it is caused by a sickness or injury that first manifests itself while this rider is in force; and 3. For the first two years, that the Insured is unable to perform the substantial duties of his or her occupation and is not engaged in any occupation for remuneration or profit; and 4. Thereafter, that the Insured is unable to engage for remuneration or profit in any occupation for which the Insured is or becomes qualified by reason of education, training, or experience. ----------------------------------------------------------------------------- PRESUMPTION OF DISABILITY ----------------------------------------------------------------------------- Regardless of any other cause of disability, the following will be considered total and permanent disability under the terms of this rider: 1. The entire and irrecoverable loss of sight of both eyes; 2. The loss by severance of both feet at or above the ankles or both hands at or above the wrists; or 3. The loss by severance of one entire hand and one entire foot, as defined above. ----------------------------------------------------------------------------- REFUND OF COST OF INSURANCE ----------------------------------------------------------------------------- Any Monthly Deduction that is due during total and permanent disability before the Company's approval of a claim must be paid when due. Upon approval of the claim, the Company will refund the Monthly Deductions since the inception of the disability. In no event will more than two years of Monthly Deductions be refunded. ----------------------------------------------------------------------------- EXCLUSIONS ----------------------------------------------------------------------------- No benefit will be provided if total and permanent disability results from: 1. Intentionally self-inflicted injury including but not limited to the intentional use of illicit drugs; or 2. Warfare, declared or undeclared, or any act incident thereto, while the Insured is in the military; or 3. The Insured's participating in or committing a felony or an assault or being incarcerated in a penal institution or governmental detention facility; or 4. A disability of less than six months' duration. ----------------------------------------------------------------------------- NOTICE OF AND PROOF OF CLAIM ----------------------------------------------------------------------------- Before any Monthly Deduction is waived, notice of claim and due proof of the total and permanent disability of the Insured must be presented to our Home Office. The claim must be presented while the Insured is living and still totally and permanently disabled. A claim under this rider will not be denied because of failure to comply with the above if: 1. It is shown that it was not reasonably possible to comply; and 2. Notice and due proof was provided as soon as it was reasonably possible. Before any claim for benefits is approved or continued, we reserve the right to have the Insured examined at our expense by one or more physicians of our choice when and as often as we may reasonably require. ----------------------------------------------------------------------------- PROOF OF CONTINUANCE OF DISABILITY AND RECOVERY FROM DISABILITY ----------------------------------------------------------------------------- During the first two years of total and permanent disability, proof of the Insured's continued total and permanent disability and the Insured's employment status must be furnished whenever the Company requests. After two years, we will not request such proof more often than once a year. The Company has the right to receive various records, including but not limited to: financial records of the Insured such as federal tax returns, income statements, audit reports, payroll records and other similar documents to substantiate a claim. The Owner and the Insured must cooperate with the Company in the investigation of a claim. The Company may also request the Insured to submit to an interview under oath during the time of a claim and require the Insured to sign it. Should we decide to do this, we will pay for the cost of the interview. Disability will be considered terminated if: 1. Proof of the Insured's continued total and permanent disability is not provided; or 2. The Insured recovers and is no longer totally and permanently disabled; or 3. The Insured fails to cooperate in the investigation of his or her claim. If total and permanent disability is considered terminated, all Monthly Deductions that become due thereafter must be paid as provided in the policy. The Owner must notify the Company within 30 days if the Insured recovers from total and permanent disability. The Company may cancel this rider and is entitled to the payment of Monthly Deductions that have been waived if it determines that the Insured has recovered from total and permanent disability and the Company has not been notified as required. ----------------------------------------------------------------------------- DEATH BENEFIT OPTION CHANGE ----------------------------------------------------------------------------- When the Company approves a claim under this rider, if Death Benefit Option A is in effect under this policy on the date the disability began, it will be changed to Death Benefit Option B as of the Monthly Anniversary after the disability began. The Specified Amount will be equal to the amount of life insurance at risk to the Company on the date the disability began. ----------------------------------------------------------------------------- GENERAL RIDER PROVISIONS ----------------------------------------------------------------------------- CONSIDERATION The consideration for issuing this rider is: 1. Completion of the application; and 2 2. Payment of the additional cost of insurance for this rider as shown on the Policy Information Page of the policy. The Cost of Insurance for this rider and the period of time it must be paid is shown on the Policy Information Page. Cost of Insurance for this rider is payable in addition to the cost of insurance for the policy and is due on the same date. Cost of Insurance for this rider stops when the rider terminates. If we accept a payment for a period of time beyond the termination date of the rider, the rider still terminates in accordance with the provision of the rider and any unearned payment will be refunded. POLICY PROVISIONS The terms and conditions of the policy, except the Incontestability provision, apply to the rider. However, where the terms or conditions of the policy are inconsistent with those of the rider, the terms of the rider prevail. INCONTESTABILITY The Company will not contest this rider for any reason other than fraud or nonpayment of premiums, after it has been in force during the Insured's lifetime for two years with no occurrence of disability of the Insured. The two-year period begins on the Effective Date of the rider. NO NON FORFEITURE VALUES This rider has no loan, cash value, non-forfeiture or guaranteed values. TERMINATION This rider will terminate on the earliest of: 1. The Monthly Anniversary following the Insured's 60th birthday; or 2. Expiration of the Grace Period for the policy; or 3. The date the policy is surrendered; or 4. The next Monthly Anniversary following written request from the Owner to terminate the rider; or 5. The date the policy otherwise terminates. The rider is issued and attached to the policy by USAA Life Insurance Company, San Antonio, Texas. Effective Date of this rider if other than effective date of policy:_________. ___________________________ Edwin L. Rosane - President 3 EX-1.(10)(A) 4 EXHIBIT 1.(10)(a) VARIABLE UNIVERSAL LIFE APPLICATION (Known in some states as Flexible Premium Variable Life) ABOUT THIS BOOKLET Here's the life insurance application you requested. Before you begin, please take a moment to read the step-by-step instructions below. If you have questions and would like to speak to an Account Representative, please call toll free 1-800-292-8444 (in San Antonio call 456-9050). 1. This booklet contains an application for USAA Life Insurance Company's Variable Universal Life insurance policy. Please complete the entire application and sign where indicated. If additional space is needed to answer any question, please attach an extra sheet of paper. 2. Use the Guide opposite the questions as a "road map" to completing the application. 3. In some cases, medical tests will be required. USAA Life will arrange and pay for the tests. 4. To take advantage of our Automatic Payment Plan for premium payments, complete the authorization form enclosed in your packet and attach a check marked "VOID" to the form. 5. RETURN THIS BOOKLET INTACT along with any required premium payment in the enclosed postage-paid envelope. If the insurance you're applying for, plus any other insurance you have with USAA Life, exceeds $500,000, do NOT send the premium payment with your application. We will bill you when your application is approved. USAA LIFE INSURANCE COMPANY [LOGO] 31345-0198 ---------- ST VARIABLE UNIVERSAL LIFE - PART I - GUIDE 1 PROPOSED INSURED Annual income is NOT required if the applicant is a dependent child. 2 POLICYOWNER Only the Policyowner can exercise policy rights. If the Proposed Insured is a minor, an adult must be named as the Policyowner. If a business is named as the Policyowner, indicate the name of business. After the policy is issued, a Business Authorization Form will be sent to you. If the Policyowner is other than the Proposed Insured, we recommend that a Successor Owner be named in Section 20, Special Requests, under Personal Profile Part II. Generally, it is advisable to name the Proposed Insured as the Successor Owner unless federal estate tax is a consideration OR the Proposed Insured is a minor. 3 PAYOR If the premiums for the policy will be paid by someone other than the Policyowner, please complete this section. 31345-0198 ---------- ST VARIABLE UNIVERSAL LIFE ~ PART I ~ APPLICATION 1 PROPOSED INSURED (PLEASE PRINT OR TYPE) NAME: FIRST MIDDLE LAST BIRTH DATE: MO DAY YR AGE ____________________________________________ ______________________ ____ BIRTHPLACE (STATE) SEX: [ ] M [ ] F SOCIAL SECURITY NUMBER _____________________ USAA NUMBER (IF ANY) _______________________ DRIVER'S LICENSE NUMBER AND STATE OF ISSUE ________________________ EMPLOYER/SOURCE OF INCOME __________________ OCCUPATION / DUTIES ________________________ ANNUAL INCOME $___________________________ MILITARY STATUS: [ ] ACTIVE DUTY [ ] RETIRED [ ] ACTIVE RESERVE [ ] INACTIVE RESERVE [ ] SEPARATED [ ] PRECOMMISSIONED [ ] NONE BRANCH OF SERVICE/GOVT AGENCY MILITARY RANK _____________________________ _____________ RESIDENCE PHONE EXT. BUSINESS PHONE EXT. (___)_______________ _______ (___)_______________ _______ RESIDENCE ADDRESS: NUMBER & STREET CITY STATE ZIP ____________________________________________________________________________ YEARS THERE ______________ BUSINESS ADDRESS: NUMBER & STREET CITY STATE ZIP ____________________________________________________________________________ YEARS EMPLOYED ______________________ HAVE YOU OR YOUR SPOUSE EVER BEEN AN OFFICER IN THE U.S. ARMED FORCES? [ ] YES [ ] NO HAVE EITHER OF YOUR PARENTS OR YOUR SPOUSE'S PARENTS EVER BEEN AN OFFICER IN THE U.S. ARMED FORCES? [ ] YES [ ] NO 2 POLICYOWNER (COMPLETE ONLY IF THE POLICYOWNER IS OTHER THAN THE PROPOSED INSURED OR IF THE PROPOSED INSURED IS UNDER AGE 15) RANK/TITLE NAME: FIRST MIDDLE LAST ____________________________________________________________________________ RELATIONSHIP TO INSURED SSN/TAX ID NO. ____________________________________________________________________________ ADDRESS: NUMBER & STREET CITY STATE ZIP ____________________________________________________________________________ RESIDENCE PHONE EXT. BUSINESS PHONE EXT. (___)_______________ _______ (___)_______________ _______ BIRTH MO DAY YR DATE: __/__/__ USAA NUMBER (IF ANY) ____________ POLICY SENT TO POLICYOWNER UNLESS OTHERWISE REQUESTED.[ ] INSURED [ ] OTHER IF OTHER, PLEASE COMPLETE THE FOLLOWING: NAME: FIRST MIDDLE LAST ____________________________________________________________________________ ADDRESS: NUMBER & STREET CITY STATE ZIP ____________________________________________________________________________ YEARS THERE _______________ 3 PAYOR (COMPLETE ONLY IF PAYOR IS OTHER THAN POLICYOWNER) NAME: FIRST MIDDLE LAST ____________________________________________________________________________ RELATIONSHIP TO INSURED ____________________________________________________________________________ SSN/TAX ID NO. ____________________________________________________________________________ ADDRESS: NUMBER & STREET CITY STATE ZIP ____________________________________________________________________________ YEARS THERE ____________ RESIDENCE PHONE EXT. BUSINESS PHONE EXT. (___)_______________ _______ (___)_______________ _______ BIRTH MO DAY YR DATE: __/__/__ USAA NUMBER (IF ANY) ____________ PREMIUM NOTICES SENT TO POLICYOWNER UNLESS OTHERWISE REQUESTED. VULXXXXST 1-98 TURN TO NEXT PAGE. USAA LIFE INSURANCE COMPANY 9800 FREDERICKSBURG ROAD SAN ANTONIO, TEXAS 78288 31345-0198 ---------- ST 4 POLICY AMOUNT AND OPTIONAL BENEFITS SELECT OPTION-Option A and/or Option B are mentioned in the enclosed illustration. Be sure to write in the SPECIFIED AMOUNT OF INSURANCE. Then decide which OPTIONAL BENEFITS you want. Each of the options carries an additional premium. WAIVER OF MONTHLY DEDUCTION - If you suffer an accident or illness that results in a covered disability; this option guarantees that your cost of insurance will be paid for you during the period of your disability. The premium for this benefit varies based on the age of the Proposed Insured. ACCIDENTAL DEATH BENEFIT (ADB) - If you die as a result of a covered accident, this option will pay your beneficiary an ADDITIONAL amount above the face amount you have selected for the policy. The selected ADB can be up to a maximum of $200,000, or the face amount of the policy, whichever is less. The premium for ADB is $.84 per $1,000 of coverage per year. CHILD RIDER - An easy way to provide coverage for your child(ren), this rider is available in $1,000 increments from $2,000 to a maximum of $25,000. The cost for this rider is $6 per $1,000 of coverage per year. Premiums remain the same, regardless of the number of children covered. The Proposed Insured under the basic policy must be age 20 through 55 to select the Child Rider option. If you select the Child Rider option, you must complete Sections 13-19 of the Personal Profile. 5 PREMIUM AMOUNT AND METHOD OF PAYMENT PREMIUM AMOUNT - Write in your Planned Periodic Premium for the amount of insurance and Optional Benefits you selected in Section 4. (See the enclosed illustration for the premiums.) If you select the Automatic Payment Plan, enclose a check for two months' premium. If you select any other method of payment, enclose one full payment for the payment interval selected. (Please make checks payable to USAA Life Insurance Company.) METHOD OF PAYMENT - Select the method by which you want to make your premium payments. AUTOMATIC PAYMENT PLAN. We suggest that you use our Automatic Payment Plan. This is an efficient and economical monthly payment system that authorizes USAA Life to automatically withdraw your premium payment on the date of your choice from your bank account. Complete and return the authorization form enclosed in your packet. MONTHLY GOVERNMENT ALLOTMENT. If you are eligible, you may elect to pay your premiums by Monthly Government Allotment. With this method, your contract premium amount is deducted at the end of the month in which the salary is earned. We'll provide additional instructions after your policy is issued. DIRECT BILLING. If you choose this method, please also select a payment frequency. You can choose between an annual, semi-annual or quarterly direct premium payment plan. SINGLE PREMIUM. Single Premium means you have no plans for future premium payments. NOTE: IF THE INSURANCE YOU'RE APPLYING FOR, PLUS ANY OTHER INSURANCE YOU NOW HAVE WITH USAA LIFE, EXCEEDS $500,000, DO NOT SEND THE PREMIUM WITH YOUR APPLICATION. WE WILL BILL YOU WHEN YOUR APPLICATION IS APPROVED. 1035 EXCHANGE If you intend to cancel an existing policy and transfer the cash surrender value to the policy applied for in this application, then fill in the amount of exchange and the company name of the policy. You should complete a separate 1035 Exchange form and send it and your old policy with your application. 31345-0198 ---------- ST 4 POLICY AMOUNT AND OPTIONAL BENEFITS PLAN NAME: VARIABLE UNIVERSAL LIFE (KNOWN AS FLEXIBLE PREMIUM VARIABLE LIFE IN GA, IL, IN, MD, PA, TN, VA, AND DC.) SPECIFIED AMOUNT OF INSURANCE ($100,000 MINIMUM) $_______________ SELECT OPTION (CHECK ONLY ONE): [ ] OPTION A [ ] OPTION B Provides fixed death Provides fixed benefit protection insurance protection plus your cash value as total death benefit OPTIONAL BENEFITS: CHECK THE BENEFITS YOU ARE REQUESTING AND FILL IN AMOUNT IF APPLICABLE. [ ] WAIVER OF MONTHLY DEDUCTION (Not available if Proposed Insured is under age 15 or over age 55: not available in New York). [ ] ACCIDENTAL DEATH BENEFIT (ADB) (Not available if Proposed Insured is under age 10 or over age 60) $___________ [ ] CHILD RIDER (Only available if Proposed Insured is age 20 through 55 and child is age 17 or under; not available for residents of Hawaii) $____________ [ ] OTHER _________________________________ 5 PREMIUM AMOUNT AND METHOD OF PAYMENT INITIAL PREMIUM PAYMENT AMOUNT $__________ PLANNED PERIODIC PREMIUMS $_________ METHOD OF PAYMENT (SELECT ONLY ONE) [ ] AUTOMATIC PAYMENT PLAN (MONTHLY) $ ______________ You must complete and return the enclosed authorization form with this application. Please include a voided check from your financial institution. [ ] MONTHLY GOVERNMENT ALLOTMENT $ ______________ [ ] DIRECT BILLING $ ______________ [ ] ANNUALLY $ ______________ [ ] SEMI-ANNUALLY $ ______________ [ ] QUARTERLY $ ______________ [ ] SINGLE PREMIUM $ ______________ PLEASE ENCLOSE A CHECK FOR THE INITIAL PREMIUM PAYMENT AMOUNT WITH YOUR COMPLETED APPLICATION. If the amount of insurance you're applying for, plus any other life insurance you have with USAA Life, exceeds $500,000, do NOT send the premium. 1035 EXCHANGE $____________ FROM ________________________ (NAME OF COMPANY) VULXXXXST 1-98 USAA LIFE INSURANCE COMPANY 9800 FREDERICKSBURG ROAD SAN ANTONIO, TEXAS 78288 31345-0198 ---------- ST 6 INVESTMENT ALLOCATION Provide the desired percent allocation of the initial premium payment you request next to your selected accounts. If you are allocating your premium payment to variable fund accounts other than the Money Market Variable Fund Account, that portion of your premium payment will be allocated to the Money Market Variable Fund Account for a period equal to the FREE LOOK PERIOD stated in your policy plus five days. At the end of the period, the premium payments will be allocated as directed in this application and as explained in more detail in the prospectus. If you decide to return the policy within the FREE LOOK PERIOD, USAA Life will refund your money as explained in the policy. 7 INVESTMENT SUITABILITY INFORMATION These questions are intended to help you determine your Investment Objectives and Risk Tolerance. This information helps us determine the suitability of this policy for your needs. Please complete all of this information to the best of your ability. Enter a number from 1-4 in the space provided (with 1 as the highest) to rate the priority of your Investment Objectives and Risk Tolerance. Below this, complete the information based on the Policyowner's income and net worth. 8 TOBACCO USE Please answer questions regarding your tobacco use. NOTE: TOBACCO USE QUESTION A SHOULD BE ANSWERED "YES" IF THE PROPOSED INSURED HAS USED ANY TOBACCO PRODUCTS OR NICOTINE SUBSTITUTES (E.G., NICOTINE PATCH OR GUM) IN THE PAST 12 MONTHS. 31345-0198 ---------- ST 6 INVESTMENT ALLOCATION You may allocate your premium payment to as many of the variable fund accounts as you like, in amounts no smaller than one tenth of a percent, as long as the total equals 100%. USAA LIFE: _____ % Growth & Income _____ % World Growth _____ % Aggressive Growth _____ % Diversified Assets _____ % International _____ % Income _____ % Money Market _____ % Alger American Growth _____ % Scudder VLIF Capital Growth _____ % Bankers Trust Equity 500 Index _____ % Bankers Trust Small Cap Index _____ % Bankers Trust EAFE (R) Index 100% TOTAL 7 INVESTMENT SUITABILITY INFORMATION (TO BE COMPLETED BY POLICYOWNER) INVESTMENT OBJECTIVES Enter a priority rating from 1-4 (with 1 as highest). _____ Long-term gain _____ Short-term gain _____ Income _____ Tax advantaged RISK TOLERANCE Check one. ______ Aggressive ______ Moderate ______ Conservative INVESTMENT TIME HORIZON [ ] 1-10 years [ ] 10-20 years [ ] 20+ years Annual income from occupation $_______ Annual income from other sources $_______ Projected income for next 12 months $_______ Estimated net worth (excluding home) $_______ Tax bracket _____ List sources of income ________________ 8 TOBACCO USE (PLEASE LIST DETAILS FOR EACH "YES" ANSWER IN THE SPACE PROVIDED BELOW) A. Has the Proposed Insured smoked one or more cigarettes in the last 12 months? [ ] Yes [ ] No B. Has the Proposed Insured used any other form of tobacco or tobacco surrogate in the last 12 months? [ ]Yes [ ] No C. Has the Proposed Insured ever used any form of tobacco? [ ]Yes [ ]No TYPE AVERAGE DAILY USAGE DATE LAST USED ________ ___________________ _______________ TYPE AVERAGE DAILY USAGE DATE LAST USED ________ ___________________ _______________ TYPE AVERAGE DAILY USAGE DATE LAST USED ________ ___________________ _______________ TYPE AVERAGE DAILY USAGE DATE LAST USED ________ ___________________ _______________ NOW, COMPLETE THE PERSONAL PROFILE SECTION. VULXXXXST 1-98 USAA LIFE INSURANCE COMPANY 9800 FREDERICKSBURG ROAD SAN ANTONIO, TEXAS 78288 31345-0198 ---------- ST PERSONAL PROFILE - PART I - GUIDE 9 PURPOSE OF INSURANCE Please check the appropriate box for Purpose of Insurance. Purpose of Insurance includes two broad areas -- personal and business. PERSONAL INSURANCE INCLUDES: FAMILY PROTECTION, which protects against the loss of your future income; ESTATE LIQUIDITY, which protects against the forced sale of your estate to pay estate taxes; DEBT PROTECTION, to pay specific debt balances. BUSINESS INSURANCE INCLUDES: KEY PERSON, which protects a business from loss of revenue due to the death of a key person; BUY/SELL AGREEMENT, which provides funding to settle a deceased partner's business interest. IF THE PURPOSE FOR THIS INSURANCE IS NOT LISTED, please check "Other" and indicate the purpose in the space provided. 10 BENEFICIARY DESIGNATION Please write in the full name and address of each beneficiary. If you wish to name a trust as beneficiary, please indicate whether it is an intervivos (living) trust or a testamentary trust established by your will. If it is an intervivos trust, please include the date it was written, grantor's name, and the name and address of the trustee. PRIMARY BENEFICIARY - This is the person, persons, or trust to receive the proceeds from the policy at the insured's death. CONTINGENT BENEFICIARY - The person, persons, or trust to receive the proceeds if the primary beneficiary does not survive the insured. If more than one person is named as primary or contingent beneficiary, the proceeds will be divided equally unless otherwise directed. NOTE: WHEN YOU NAME A BENEFICIARY, PLEASE INCLUDE NAME, ADDRESS, RELATIONSHIP, AND SOCIAL SECURITY OR TAX IDENTIFICATION NUMBER INFORMATION. 11 LIFE INSURANCE NOW IN FORCE (OR APPLIED FOR ON THE LIFE OF PROPOSED INSURED NAMED IN PART I) COMPLETE NAME OF COMPANY - Please list all policies currently in force or applied for on the life of the individual to be insured. If none, so indicate. TYPE OF PLAN AND COVERAGE - Please indicate type of plan and coverage type (e.g., personal, business, group) for each policy listed. ACCIDENTAL DEATH BENEFIT - If any of these policies have an Accidental Death Benefit, fill in the dollar amount. 12 REPLACEMENT If you are replacing a policy, please provide the following information:. name of company, amount of policy, effective date of policy, and policy number. NOTE: IF YOU ARE REPLACING A POLICY THAT HAS SUBSTANTIAL CASH AVAILABLE, YOU MAY BE CREATING A TAXABLE SITUATION. TAX RULES MAY ALLOW YOU TO DEFER THIS TAXABLE GAIN WHEN BUYING ANOTHER POLICY. SPECIAL FORMS ARE REQUIRED IN SUCH SITUATIONS, SO PLEASE CALL FOR ASSISTANCE. HAWAII RESIDENTS: IF YOU CHECK "YES" FOR REPLACEMENT, state law requires that you send your policy to USAA Life Insurance Company for comparison. 31345-0198 ---------- ST PERSONAL PROFILE ~ PART I 9 PURPOSE OF INSURANCE [ ] FAMILY PROTECTION [ ] KEY PERSON [ ] ESTATE LIQUIDITY [ ] BUY/SELL AGREEMENT [ ] DEBT PROTECTION [ ] OTHER 10 BENEFICIARY DESIGNATION (ATTACH A SEPARATE SHEET IF MORE SPACE IS REQUIRED) NAME OF PRIMARY BENEFICIARY(IES): FIRST MIDDLE LAST _____________________________________________________________________________ RELATIONSHIP TO INSURED BIRTH DATE: MO DAY YR SSN / TAX ID NUMBER _________________________________________/___/_______________________________ ADDRESS: NUMBER & STREET CITY STATE ZIP ____________________________________________________________________________ NAME OF CONTINGENT BENEFICIARY(IES): FIRST MIDDLE LAST _____________________________________________________________________________ RELATIONSHIP TO INSURED BIRTH DATE: MO DAY YR SSN / TAX ID NUMBER _________________________________________/___/____________________________ ADDRESS: NUMBER & STREET CITY STATE ZIP ____________________________________________________________________________ IF THERE ARE NO SURVIVING BENEFICIARIES, THE PROCEEDS ARE PAID TO THE OWNER OR, IF THE OWNER IS DECEASED, TO THE OWNER'S ESTATE. IF A BENEFICIARY DESIGNATED IS A TRUST PLEASE PROVIDE THE TRUST NAME, GRANTOR'S NAME, TRUST DATE, TRUSTEE INFORMATION AND TRUST TAX IDENTIFICATION NUMBER. 11 LIFE INSURANCE NOW IN FORCE (OR APPLIED FOR ON THE LIFE OF PROPOSED INSURED NAMED IN PART I) 1. NAME OF COMPANY POLICY NUMBER YR ISSUED TYPE PLAN ___________________________________________________________________ COVERAGE TYPE AMOUNT ACCIDENTAL DEATH BENEFIT ___________________________________________________________________ 2. NAME OF COMPANY POLICY NUMBER YR ISSUED TYPE PLAN ___________________________________________________________________ COVERAGE TYPE AMOUNT ACCIDENTAL DEATH BENEFIT ___________________________________________________________________ 3. NAME OF COMPANY POLICY NUMBER YR ISSUED TYPE PLAN ___________________________________________________________________ COVERAGE TYPE AMOUNT ACCIDENTAL DEATH BENEFIT ___________________________________________________________________ 12 REPLACEMENT Is this application for insurance intended to replace or modify any life insurance now in force on the life of any Proposed Insured? (This information is required by state regulations.) [ ] Yes [ ]No IF YES, PLEASE LIST EACH POLICY TO BE REPLACED. _____________________________________________________________________________ COMPANY AMOUNT ISSUE DATE POLICY NUMBER _____________________________________________________________________________ COMPANY AMOUNT ISSUE DATE POLICY NUMBER TURN TO NEXT PAGE VULXXXXST 1-98 USAA LIFE INSURANCE COMPANY 9800 FREDERICKSBURG ROAD SAN ANTONIO, TEXAS 78288 31345-0198 ---------- ST 13 CHILD RIDER (AVAILABLE FOR CHILDREN AGE 17 AND UNDER; NOT AVAILABLE IN HAWAII) Complete this section if you are requesting Child Rider coverage on your policy. Complete questions about children in Section 18 of Part II, Statement of Health. Family members who are not listed will not be covered. NOTE: UNLESS OTHERWISE DESIGNATED UNDER SECTION 20, SPECIAL REQUESTS, THE BENEFICIARY FOR THIS INSURANCE WILL BE THE PROPOSED INSURED UNDER THE BASIC POLICY. 14 AVOCATION Complete this section for all persons to be covered under the basic policy and Child Rider. Please give details regarding the type of activity and frequency of participation. 15 FOREIGN RESIDENCE / TRAVEL Complete this section for all persons to be covered under the basic policy and Child Rider. This question applies to active duty personnel as well as to civilians. Do not include vacation travel of 30 days or less to Europe, Canada, Mexico, or Japan. 16 AVIATION Complete this section for all persons to be covered under the basic policy and Child Rider. Please give details regarding type of aircraft, FAA certificate type(s), and hours flown. 17 DRIVING HISTORY Complete this section for all persons to be covered under the basic policy and Child Rider. Please provide details regarding driving history for the past five years. 31345-0198 ---------- ST 13 CHILD RIDER (ATTACH A SEPARATE SHEET IF MORE SPACE IS REQUIRED) IF COVERAGE IS NOT REQUIRED, PROCEED TO THE NEXT QUESTION. 1. CHILD'S NAME SEX: [ ]M [ ]F BIRTH DATE: MO DAY YR _________________________________________________________________ SOCIAL SECURITY NUMBER HEIGHT (FT/IN) WEIGHT (LBS) _________________________________________________________________ AMOUNT OF LIFE INSURANCE NOW IN FORCE _________________________________________________________________ 2. CHILD'S NAME SEX: [ ]M [ ]F BIRTH DATE: MO DAY YR _________________________________________________________________ SOCIAL SECURITY NUMBER HEIGHT (FT/IN) WEIGHT (LBS) _________________________________________________________________ AMOUNT OF LIFE INSURANCE NOW IN FORCE _________________________________________________________________ 3. CHILD'S NAME SEX: [ ]M [ ]F BIRTH DATE: MO DAY YR _________________________________________________________________ SOCIAL SECURITY NUMBER HEIGHT (FT/IN) WEIGHT (LBS) _________________________________________________________________ AMOUNT OF LIFE INSURANCE NOW IN FORCE _________________________________________________________________ 14 AVOCATION Has any Proposed Insured ever participated in or does any Proposed Insured plan to participate in (within the next 12 months) any of the following: [ ] Yes [ ] No IF YES, CHECK ALL THAT APPLY AND PROVIDE DETAILS BELOW. [ ] AUTOMOBILE RACING [ ] SKYDIVING [ ] ROCK OR MOUNTAIN CLIMBING [ ] POWERBOAT RACING [ ] ULTRALIGHT FLYING [ ] MOTORCYCLE RACING [ ] HANG GLIDING [ ] SCUBA DIVING [ ] BALLOONING PROPOSED INSURED AVOCATION TIMES PER MONTH ___________________________________________________ DETAILS (SPEEDS ATTAINED, DEPTHS/HEIGHTS REACHED, ETC.) ________________________________________________________ PROPOSED INSURED AVOCATION TIMES PER MONTH ___________________________________________________ DETAILS (SPEEDS ATTAINED, DEPTHS/HEIGHTS REACHED, ETC.) ________________________________________________________ 15 FOREIGN RESIDENCE / TRAVEL Do any of the Proposed Insureds plan to travel to or reside in a foreign country within the next 12 months? [ ] Yes [ ] No IF YES, PROVIDE DETAILS AS INDICATED BELOW. _____________________________________________________________________________ PROPOSED INSURED COUNTRY NAME PURPOSE OF VISIT LENGTH OF STAY _____________________________________________________________________________ PROPOSED INSURED COUNTRY NAME PURPOSE OF VISIT LENGTH OF STAY 16. AVIATION Has any Proposed Insured ever flown or does any Proposed Insured plan to fly in the next 24 months as a pilot, crew member, student, or in any capacity other than as a passenger? [ ] Yes [ ] No IF YES, COMPLETE THE FOLLOWING. ACTIVE DUTY OR RESERVE BRANCH OF SERVICE MAJOR COMMAND (AMC, ACC, etc.) ____________________________________________________________________________ TYPE(S) OF AIRCRAFT [ ] PILOT [ ] CREW MEMBER ____________________________________________________________________________ HOURS FLOWN: NEXT 12 MOS. LAST 12 MOS. 13-24 MOS. AGO ____________________________________________________________________________ COMMERCIAL ____________________________________________________________________________ TYPE(S) OF AIRCRAFT [ ] PILOT [ ] CREW MEMBER ____________________________________________________________________________ HOURS FLOWN: NEXT 12 MOS. LAST 12 MOS. 13-24 MOS. AGO ____________________________________________________________________________ CIVILIAN PLEASURE ____________________________________________________________________________ TYPE(S) OF AIRCRAFT [ ] PILOT [ ] CREW MEMBER ____________________________________________________________________________ HOURS FLOWN: NEXT 12 MOS. LAST 12 MOS. 13-24 MOS. AGO ____________________________________________________________________________ TOTAL HOURS FLOWN WHILE IN CHARGE OF AN AIRCRAFT: _____ MILITARY _____CIVILIAN If aviation participation requires a restriction for the base policy, which do you prefer? [ ] Pay additional premium [ ] Have policy contain an Aviation Exclusion except when traveling as a passenger NOTE: THE ABOVE OPTIONS DO NOT APPLY TO THE ACCIDENTAL DEATH BENEFIT. THE AVIATION EXCLUSION FOR THAT BENEFIT CANNOT BE WAIVED. 17 DRIVING HISTORY Within the last five years, has any Proposed Insured been convicted of Driving While Intoxicated, Driving Under the Influence, two or more moving violations, or had a driver's license suspended or revoked? [ ] Yes [ ] No IF YES, PROVIDE DETAILS AS INDICATED BELOW. ____________________________________________________________________________ PROPOSED INSURED DATE VIOLATION TYPE DETAILS (SPEED, LENGTH OF SUSPENSION/REVOCATION, ETC.) ____________________________________________________________________________ PROPOSED INSURED DATE VIOLATION TYPE DETAILS (SPEED, LENGTH OF SUSPENSION/REVOCATION, ETC.) TURN TO NEXT PAGE. VULXXXXST 1-98 USAA LIFE INSURANCE COMPANY 9800 FREDERICKSBURG ROAD SAN ANTONIO, TEXAS 78288 31345-0198 ---------- ST PERSONAL PROFILE - PART II GUIDE 18 STATEMENT OF HEALTH Complete this section for all persons to be covered under the basic policy and Child Rider. Depending upon your age, the amount of coverage for which you are applying, and your health history, certain medical tests will need to be performed to underwrite your insurance. USAA Life will have a paramedical service contact you to schedule the appointment. We will pay for anything we request. If you would like to expedite the process, please call your Account Representative. ATTENTION APO/FPO: You will not be contacted by a paramedical service. If tests or exams are indicated, please have a physician complete the enclosed Medical Examiner's Report. 19 MEDICAL DETAILS Please list details to questions answered "YES" in the Statement of Health. Attach a separate sheet if more space is required. PERSONAL PROFILE - PART II 18 STATEMENT OF HEALTH (COMPLETE THIS SECTION FOR ALL PROPOSED INSUREDS INCLUDING ANY PERSON TO BE COVERED BY THE CHILD RIDER) Give full details of any "YES" answers to questions #3 or #4. Include dates, name of Proposed Insured, name and address of physician consulted, reason for visit, type of treatment, and any medication prescribed in the MEDICAL DETAILS section listed below. 1. Height and weight of Proposed Insured. ___ Feet ___ Inches ___ Lbs. 2. Has there been any change in weight during the last 12 months? [ ] Yes [ ] No If yes, indicate gain or loss. Gain ___ Lbs. Loss ___ Lbs. 3. Has any Proposed Insured under the basic policy or under the Child Rider ever: YES NO A. Had a life or health insurance application declined, postponed, modified or rated? [ ] [ ] B. Had or been treated by a physician or consulted with a health advisor for any of the following: 1. Disorder of eyes, ears, nose or throat? [ ] [ ] 2. High blood pressure, chest pain, heart attack, or other cardiovascular disorder? [ ] [ ] 3. Disorder of the kidney, genitourinary tract, or reproductive system? [ ] [ ] 4. Diabetes, hyperthyroidism, or other endocrine gland disorder? [ ] [ ] 5. Ulcers, hepatitis, disorder of pancreas, liver, or intestines? [ ] [ ] 6. Cancer, tumors, arthritis, disorder of the bones or joints, or connective tissue disease? [ ] [ ] 7. Disorder of the blood, lymph glands, or respiratory system? [ ] [ ] 8. Mental, nervous system, or brain disorder? [ ] [ ] 9. Alcoholism or advised to reduce or discontinue the use of alcohol for health reasons? [ ] [ ] C. Consulted for any other reason a physician or other physical or mental health advisor within the last five years? [ ] [ ] D. Used marijuana, cocaine, heroin, barbiturates, hallucinogens, or amphetamines unless on the advice of a physician? [ ] [ ] E. Been diagnosed or treated by a physician for Acquired Immune Deficiency Syndrome (AIDS), AIDS-related complex (ARC), or AIDS-related condition? [ ] [ ] F. Been diagnosed or treated by a physician for any other sexually transmitted disease (other than AIDS/ARC)? 4. Did mother or father of any Proposed Insured die before age 60 of cardiovascular disease or cancer? [ ] [ ] 19 MEDICAL DETAILS (ATTACH A SEPARATE SHEET IF MORE SPACE IS REQUIRED) QUESTION # PROPOSED INSURED VISIT DATE VISIT REASON _____________________________________________________________________________ DOCTOR'S NAME/ADDRESS TREATMENT MEDICATION _____________________________________________________________________________ QUESTION # PROPOSED INSURED VISIT DATE VISIT REASON _____________________________________________________________________________ DOCTOR'S NAME/ADDRESS TREATMENT MEDICATION _____________________________________________________________________________ QUESTION # PROPOSED INSURED VISIT DATE VISIT REASON _____________________________________________________________________________ DOCTOR'S NAME/ADDRESS TREATMENT MEDICATION _____________________________________________________________________________ QUESTION # PROPOSED INSURED VISIT DATE VISIT REASON _____________________________________________________________________________ DOCTOR'S NAME/ADDRESS TREATMENT MEDICATION _____________________________________________________________________________ QUESTION # PROPOSED INSURED VISIT DATE VISIT REASON _____________________________________________________________________________ DOCTOR'S NAME/ADDRESS TREATMENT MEDICATION _____________________________________________________________________________ QUESTION # PROPOSED INSURED VISIT DATE VISIT REASON _____________________________________________________________________________ DOCTOR'S NAME/ADDRESS TREATMENT MEDICATION _____________________________________________________________________________ QUESTION # PROPOSED INSURED VISIT DATE VISIT REASON _____________________________________________________________________________ DOCTOR'S NAME/ADDRESS TREATMENT MEDICATION _____________________________________________________________________________ 20 SPECIAL REQUESTS (WRITE IN ANY SPECIAL INSTRUCTIONS HERE) _____________________________________________________________________________ _____________________________________________________________________________ _____________________________________________________________________________ NOW READ AND SIGN AUTHORIZATION IN PART III. SEE NEXT PAGE. VULXXXXST 1-98 USAA LIFE INSURANCE COMPANY 9800 FREDERICKSBURG ROAD SAN ANTONIO, TEXAS 78288 XXXXX-0198 ---------- ST PART III - AUTHORIZATION HOME OFFICE ADDITIONS AND CORRECTIONS (DO NOT WRITE IN THIS SPACE) No change in age at issue, plan of insurance, amount, risk classification, or benefits shall be effective unless agreed to in writing by the Proposed Insured and the Applicant if other than the Proposed Insured. TELEPHONE PRIVILEGES You may change premium payment allocation, request partial surrenders, request loans, and request transfers between variable fund accounts by telephone. If you want to decline the right to conduct this type of business by telephone, please check this box. ____ DECLINE CONDITIONS RELATING TO THIS APPLICATION / NOTICES The Proposed Insured and the Applicant, if other than the Proposed Insured, represent that all statements and answers contained in this application are complete and true and are offered as consideration for the insurance applied for. It is expressly agreed that: 1. The company is authorized to amend this application by an appropriate notation in the space designated HOME OFFICE ADDITIONS AND CORRECTIONS in order to correct any apparent errors or omissions. However, no change in age at issue, plan of insurance, amount, risk classification, or benefits shall be effective unless agreed to in writing by the Proposed Insured and the Applicant if other than the Proposed Insured. The acceptance of any policy issued as a result of this application shall constitute an acceptance of such amendments as well as the acceptance of the beneficiary designation, ownership, and method of payment of the proceeds of such policy. 2. The initial premium payment is held by the Company in its general account while your application is being considered. During this time no earnings are credited to an Account for you. If your application is accepted, the premium will be transferred to the Variable Fund Accounts as provided in the policy. 3. The company shall incur no liability under this application prior to delivery of the policy unless and until all conditions expressed hereafter are met: (a) an amount equal to the first full premium for the method of payment you selected is received by the company, and (b) all underwriting requirements, including any medical examinations required by the company's rules, are complete. If the Proposed Insured is an acceptable risk for insurance exactly as applied for without modification of plan, premium rate, or amount of insurance under the company's rules and practices, then the insurance under the policy applied for shall become effective on the latest of: the date the company receives the application, the date of completion of all underwriting requirements, or any date of issue requested in the application. If any of the above conditions are not met, the liability of the company shall be limited to the return of the premium submitted. PRIOR TO DELIVERY OF THE POLICY, THE COMPANY 5 MAXIMUM LIABILITY UNDER THIS APPLICATION SHALL NOT EXCEED $200,000, INCLUDING ACCIDENTAL DEATH BENEFIT. VULXXXXST 1-98 USAA LIFE INSURANCE COMPANY 9800 FREDERICKSBURG ROAD SAN ANTONIO, TEXAS 78288 XXXXX-0198 ---------- ST PART III AUTHORIZATION I hereby authorize any licensed physician, medical practitioner, hospital, clinic, or medically related facility, insurance company, Medical Information Bureau, or any other organization, institution, or person that has any records or knowledge of me or my health or that of any child to be insured, to provide USAA Life Insurance Company any such information, including information about AIDS, HIV, drugs, alcoholism, or mental illness. I further authorize USAA Life Insurance Company to release any information obtained by this authorization to its reinsurers, to the Medical Information Bureau, and other insurance companies with which I have policies or to which I may apply or to which a claim for benefits may be submitted, and to other persons or organizations performing business or legal services in connection with my application or claim. I agree that this authorization will remain in force for 2 1/2 years from its date and that a reproduction shall be as valid as the original. I authorize the company to obtain an investigative consumer report on me or any child to be insured and elect the opportunity to be interviewed if such a report is prepared. I have read and understand the above authorization. I also acknowledge receipt and review of the Notice of Privacy and Disclosure practices attached to the application envelope. I have received and read the prospectus for this Variable Universal Life contract including the prospectuses for the underlying Funds. I understand the objectives of the Variable Universal Life accounts as explained in the prospectus and have determined that my allocations are suitable investments based upon my needs and financial situation. I understand that the premium payment value allocated to the Variable Fund Accounts may increase or decrease and is not guaranteed as to a dollar amount. NOTE: The following certification is required by the Internal Revenue Service (IRS), and does not affect your insurability. CERTIFICATION - Under penalties of perjury I certify that: 1.The number shown on this form is my correct taxpayer identification number (or I am waiting for a number to be issued to me), and 2. I am not subject to backup withholding either because I have not been notified by the Internal Revenue Service (IRS) that I am subject to backup withholding as a result of failure to report all interest or dividends, or the IRS has notified me that I am no longer subject to backup withholding (does not apply to real estate transactions, mortgage interest paid the acquisition or abandonment of secured contributions to an individual retirement arrangement (IRA), and payments other than interest and dividends). CERTIFICATION INSTRUCTIONS - You must cross out item (2) above if you have been notified by the IRS that you are currently subject to backup withholding because of underreporting interest or dividends on your tax return. The IRS does not require your consent to any provision of this document other than the certifications required to avoid backup withholding. DATED AT _________________________ THIS ______ DAY OF _________________, 19____ CITY STATE ____________________________________________ SIGNATURE OF PROPOSED INSURED OF BASIC POLICY (PARENT IF UNDER 15) ____________________________________________ SIGNATURE OF POLICYOWNER IF OTHER THAN PROPOSED INSURED ____________________________________________ SIGNATURE OF WITNESS (A NOTARY IS NOT REQUIRED) USAA LIFE USE ONLY ____________________________________________ SIGNATURE OF AGENT ____________________________________________ _____________ SIGNATURE OF REGISTERED PRINCIPAL DATE VULXXXXST 1-98 USAA LIFE INSURANCE COMPANY 9800 FREDERICKSBURG ROAD SAN ANTONIO, TEXAS 78288 XXXXX-0198 ---------- ST THIS PAGE LEFT BLANK INTENTIONALLY 19714-0896 ---------- ST EX-7 5 EXHIBIT 7 USAA LIFE INSURANCE COMPANY --------------------------- POWER OF ATTORNEY STATE OF: TEXAS COUNTY OF: BEXAR Know all persons by these presents that the undersigned Director of USAA Life Insurance Company, a Texas corporation ("Corporation"), constitutes and appoints Richard T. Halinski, Jr. and Dwain A. Akins, and each of them, as his true and lawful attorney-in-fact and agent, with full power of substitution, for him and in his name, place and stead, in any and all capacities to sign registration statements of The Life Insurance Separate Account of USAA Life Insurance Company on Form S-6, or any successor form of registration statement of the Securities and Exchange Commission, filed under the Securities Act of 1933, and any and all amendments thereto, with all exhibits, instruments, and other documents necessary or appropriate in connection therewith, and to file them with the Securities and Exchange Commission or any other regulatory authority as may be necessary or desirable, hereby ratifying and confirming all that said attorney-in-fact and agent or his substitute, may lawfully do or cause to be done by virtue hereof. /s/EDWIN L. ROSANE January 20, 1998 ------------------ ---------------- EDWIN L. ROSANE Date Director On this 20th day of January 1998, before me Barbara B. Charo, the undersigned Notary Public, personally appeared EDWIN L. ROSANE, known to me to be the person whose name is subscribed to the above Power of Attorney, and acknowledged that he executed it. WITNESS my hand and official seal /s/BARBARA B. CHARO ------------------- Notary Public [SEAL] USAA LIFE INSURANCE COMPANY --------------------------- POWER OF ATTORNEY STATE OF: TEXAS COUNTY OF: BEXAR Know all persons by these presents that the undersigned Director of USAA Life Insurance Company, a Texas corporation ("Corporation"), constitutes and appoints Richard T. Halinski, Jr. and Dwain A. Akins, and each of them, as his true and lawful attorney-in-fact and agent, with full power of substitution, for him and in his name, place and stead, in any and all capacities to sign registration statements of The Life Insurance Separate Account of USAA Life Insurance Company on Form S-6, or any successor form of registration statement of the Securities and Exchange Commission, filed under the Securities Act of 1933, and any and all amendments thereto, with all exhibits, instruments, and other documents necessary or appropriate in connection therewith, and to file them with the Securities and Exchange Commission or any other regulatory authority as may be necessary or desirable, hereby ratifying and confirming all that said attorney-in-fact and agent or his substitute, may lawfully do or cause to be done by virtue hereof. /s/ROBERT G. DAVIS January 29, 1998 ------------------ ---------------- ROBERT G. DAVIS Date Director On this 29th day of January 1998, before me Leticia L. Casiano, the undersigned Notary Public, personally appeared ROBERT G. DAVIS, known to me to be the person whose name is subscribed to the above Power of Attorney, and acknowledged that he executed it. WITNESS my hand and official seal /s/LETICIA L. CASIANO --------------------- Notary Public [SEAL] USAA LIFE INSURANCE COMPANY --------------------------- POWER OF ATTORNEY STATE OF: TEXAS COUNTY OF: BEXAR Know all persons by these presents that the undersigned Director of USAA Life Insurance Company, a Texas corporation ("Corporation"), constitutes and appoints Richard T. Halinski, Jr. and Dwain A. Akins, and each of them, as his true and lawful attorney-in-fact and agent, with full power of substitution, for him and in his name, place and stead, in any and all capacities to sign registration statements of The Life Insurance Separate Account of USAA Life Insurance Company on Form S-6, or any successor form of registration statement of the Securities and Exchange Commission, filed under the Securities Act of 1933, and any and all amendments thereto, with all exhibits, instruments, and other documents necessary or appropriate in connection therewith, and to file them with the Securities and Exchange Commission or any other regulatory authority as may be necessary or desirable, hereby ratifying and confirming all that said attorney-in-fact and agent or his substitute, may lawfully do or cause to be done by virtue hereof. /s/BRADFORD W. RICH January 21, 1998 ------------------- ---------------- BRADFORD W. RICH Date Director On this 21 day of January 1998, before me Barbara B. Charo, the undersigned Notary Public, personally appeared BRADFORD W. RICH, known to me to be the person whose name is subscribed to the above Power of Attorney, and acknowledged that he executed it. WITNESS my hand and official seal /s/BARBARA B. CHARO ------------------- Notary Public [SEAL] USAA LIFE INSURANCE COMPANY --------------------------- POWER OF ATTORNEY STATE OF: TEXAS COUNTY OF: BEXAR Know all persons by these presents that the undersigned Director of USAA Life Insurance Company, a Texas corporation ("Corporation"), constitutes and appoints Richard T. Halinski, Jr. and Dwain A. Akins, and each of them, as his true and lawful attorney-in-fact and agent, with full power of substitution, for him and in his name, place and stead, in any and all capacities to sign registration statements of The Life Insurance Separate Account of USAA Life Insurance Company on Form S-6, or any successor form of registration statement of the Securities and Exchange Commission, filed under the Securities Act of 1933, and any and all amendments thereto, with all exhibits, instruments, and other documents necessary or appropriate in connection therewith, and to file them with the Securities and Exchange Commission or any other regulatory authority as may be necessary or desirable, hereby ratifying and confirming all that said attorney-in-fact and agent or his substitute, may lawfully do or cause to be done by virtue hereof. /s/JOSUE ROBLES, JR. January 29, 1998 -------------------- ---------------- JOSUE ROBLES, JR. Date Director On this 29th day of January 1998, before me Susan J. Stoudamire, the undersigned Notary Public, personally appeared JOSUE ROBLES, JR., known to me to be the person whose name is subscribed to the above Power of Attorney, and acknowledged that he executed it. WITNESS my hand and official seal /s/SUSAN B. STOUDAMIRE ---------------------- Notary Public [SEAL] USAA LIFE INSURANCE COMPANY --------------------------- POWER OF ATTORNEY STATE OF: TEXAS COUNTY OF: BEXAR Know all persons by these presents that the undersigned Director of USAA Life Insurance Company, a Texas corporation ("Corporation"), constitutes and appoints Richard T. Halinski, Jr. and Dwain A. Akins, and each of them, as his true and lawful attorney-in-fact and agent, with full power of substitution, for him and in his name, place and stead, in any and all capacities to sign registration statements of The Life Insurance Separate Account of USAA Life Insurance Company on Form S-6, or any successor form of registration statement of the Securities and Exchange Commission, filed under the Securities Act of 1933, and any and all amendments thereto, with all exhibits, instruments, and other documents necessary or appropriate in connection therewith, and to file them with the Securities and Exchange Commission or any other regulatory authority as may be necessary or desirable, hereby ratifying and confirming all that said attorney-in-fact and agent or his substitute, may lawfully do or cause to be done by virtue hereof. /s/MICHAEL J.C. ROTH January 28, 1998 -------------------- ---------------- MICAHEL J.C. ROTH Date Director On this 28th day of January 1998, before me Leticia L. Casiano, the undersigned Notary Public, personally appeared MICHAEL J.C. ROTH, known to me to be the person whose name is subscribed to the above Power of Attorney, and acknowledged that he executed it. WITNESS my hand and official seal /s/LETICIA L. CASIANO --------------------- Notary Public [SEAL] USAA LIFE INSURANCE COMPANY --------------------------- POWER OF ATTORNEY STATE OF: TEXAS COUNTY OF: BEXAR Know all persons by these presents that the undersigned Director of USAA Life Insurance Company, a Texas corporation ("Corporation"), constitutes and appoints Richard T. Halinski, Jr. and Dwain A. Akins, and each of them, as his true and lawful attorney-in-fact and agent, with full power of substitution, for him and in his name, place and stead, in any and all capacities to sign registration statements of The Life Insurance Separate Account of USAA Life Insurance Company on Form S-6, or any successor form of registration statement of the Securities and Exchange Commission, filed under the Securities Act of 1933, and any and all amendments thereto, with all exhibits, instruments, and other documents necessary or appropriate in connection therewith, and to file them with the Securities and Exchange Commission or any other regulatory authority as may be necessary or desirable, hereby ratifying and confirming all that said attorney-in-fact and agent or his substitute, may lawfully do or cause to be done by virtue hereof. /s/JANICE E. MARSHALL January 29th, 1998 --------------------- ------------------ JANICE E. MARSHALL Date Director On this 29th day of January 1998, before me Leticia L. Casiano, the undersigned Notary Public, personally appeared JANICE E. MARSHALL, known to me to be the person whose name is subscribed to the above Power of Attorney, and acknowledged that he executed it. WITNESS my hand and official seal /s/LETICIA L. CASIANO --------------------- Notary Public [SEAL] USAA LIFE INSURANCE COMPANY --------------------------- POWER OF ATTORNEY STATE OF: TEXAS COUNTY OF: BEXAR Know all persons by these presents that the undersigned Director of USAA Life Insurance Company, a Texas corporation ("Corporation"), constitutes and appoints Richard T. Halinski, Jr. and Dwain A. Akins, and each of them, as his true and lawful attorney-in-fact and agent, with full power of substitution, for him and in his name, place and stead, in any and all capacities to sign registration statements of The Life Insurance Separate Account of USAA Life Insurance Company on Form S-6, or any successor form of registration statement of the Securities and Exchange Commission, filed under the Securities Act of 1933, and any and all amendments thereto, with all exhibits, instruments, and other documents necessary or appropriate in connection therewith, and to file them with the Securities and Exchange Commission or any other regulatory authority as may be necessary or desirable, hereby ratifying and confirming all that said attorney-in-fact and agent or his substitute, may lawfully do or cause to be done by virtue hereof. /s/ WILLIAM B. TRACY January 29, 1998 -------------------- ---------------- WILLIAM B. TRACY Date Director On this 29 day of January 1998, before me Barbara B. Charo, the undersigned Notary Public, personally appeared WILLIAM B. TRACY, known to me to be the person whose name is subscribed to the above Power of Attorney, and acknowledged that he executed it. WITNESS my hand and official seal /s/BARBARA B. CHARO ------------------- Notary Public [SEAL] USAA LIFE INSURANCE COMPANY --------------------------- POWER OF ATTORNEY STATE OF: TEXAS COUNTY OF: BEXAR Know all persons by these presents that the undersigned Director of USAA Life Insurance Company, a Texas corporation ("Corporation"), constitutes and appoints Richard T. Halinski, Jr. and Dwain A. Akins, and each of them, as his true and lawful attorney-in-fact and agent, with full power of substitution, for him and in his name, place and stead, in any and all capacities to sign registration statements of The Life Insurance Separate Account of USAA Life Insurance Company on Form S-6, or any successor form of registration statement of the Securities and Exchange Commission, filed under the Securities Act of 1933, and any and all amendments thereto, with all exhibits, instruments, and other documents necessary or appropriate in connection therewith, and to file them with the Securities and Exchange Commission or any other regulatory authority as may be necessary or desirable, hereby ratifying and confirming all that said attorney-in-fact and agent or his substitute, may lawfully do or cause to be done by virtue hereof. /s/ DONALD R. WALKER January 28, 1998 -------------------- ---------------- DONALD R. WALKER Date Director On this 28th day of January 1998, before me Susan J. Stoudamire, the undersigned Notary Public, personally appeared DONALD R. WALKER, known to me to be the person whose name is subscribed to the above Power of Attorney, and acknowledged that he executed it. WITNESS my hand and official seal /s/SUSAN J. STOUDAMIRE ---------------------- Notary Public [SEAL] USAA LIFE INSURANCE COMPANY --------------------------- POWER OF ATTORNEY STATE OF: TEXAS COUNTY OF: BEXAR Know all persons by these presents that the undersigned Director of USAA Life Insurance Company, a Texas corporation ("Corporation"), constitutes and appoints Richard T. Halinski, Jr. and Dwain A. Akins, and each of them, as his true and lawful attorney-in-fact and agent, with full power of substitution, for him and in his name, place and stead, in any and all capacities to sign registration statements of The Life Insurance Separate Account of USAA Life Insurance Company on Form S-6, or any successor form of registration statement of the Securities and Exchange Commission, filed under the Securities Act of 1933, and any and all amendments thereto, with all exhibits, instruments, and other documents necessary or appropriate in connection therewith, and to file them with the Securities and Exchange Commission or any other regulatory authority as may be necessary or desirable, hereby ratifying and confirming all that said attorney-in-fact and agent or his substitute, may lawfully do or cause to be done by virtue hereof. /s/ JAMES A. ROBINSON January 28, 1998 --------------------- ---------------- JAMES A. ROBINSON Date Senior Vice President And Treasurer (Principal Financial And Accounting Officer) On this 28th day of January 1998, before me M.L. Vera Cruz, the undersigned Notary Public, personally appeared JAMES A. ROBINSON, known to me to be the person whose name is subscribed to the above Power of Attorney, and acknowledged that he executed it. WITNESS my hand and official seal /s/M.L. VERA CRUZ ----------------- Notary Public [SEAL] -----END PRIVACY-ENHANCED MESSAGE-----