May 20, 1977 M29-1, Part 1\
Change 7

CONTENTS

CHAPTER 5. DIVIDENDS

SUBCHAPTER 1. DIVIDENDS FOR CURRENT YEARS

PARAGRAPH PAGE

5.01 General 5-1\
5.02 Eligibility 5-2\
5.03 When Payable 5-2\
5.04 Dividend Months Payable 5-2\
5.05 Disposition of Dividends of Less than \$1 5-3\
5.06 Dividend Options 5.3\
5.07 Selection or Change of Dividend Option-Competent Veterans 5-4\
5.08 Selection or Change of Dividend Option -Incompetent Veterans 5-4\
5.09 Credit Option 5-5\
5.10 Premium Option 5-6\
5.11 Deposit Option 5-7

5.12 Cash Option 5-8\
5.13 Indebtedness Option 5-8\
5.13.1 Paid-up Additions Option 5-9\
5.14 Interest Rates 5-11\
5.15 Calculation of Interest 5-12\
5.16 Delay in Refund of Dividend Credit/Deposit Amounts 5-12\
**SUBCHAPTER 2. DIVIDENDS FOR PRIOR YEARS\
**5.17 General 5-12\
5.18 USGLI Dividends 5-12\
5.19 NSLI DIVIDENDS 5-13\
5.19.1 VSLI DIVIDENDS 5-13\
5.20 Date of Payment of Regular Dividends 5-14.1\
5.21 Accelerated Payment of Regular Dividends 5-14.1

5-i

M29-1, Part I May 20, 1977

Change 7

CONTENTS-Continued

PARAGRAPH PAGE

SUBCHAPTER 2. DIVIDENDS FOR PRIOR YEARS-Continued

5.22 Eligibility for Dividends for Prior Years 5-14.1\
5.23 Calculating Interest When Paying Dividends Early 5-14

SUBCHAPTER 3. REGULAR AND SPECIAL

DIVIDENDS ON TOTAL DISABILITY

INCOME PROVISION (NSLI)

5.24 Regular Dividends 5-14b\
5.25 Special Dividends (TDIP) 5-14c\
**SUBCHAPTER 4. SPECIAL DIVIDENDS ON NSLI\
** 5.26 Special Dividends-General 5-15\
5.27 1948 Special Dividend (N and V Policies Only) 5-15\
5.28 1951 Special Dividend (N and V Policies Only) 5-16\
5.29 1961 Special Dividend (V Policies Only) 5-16\
5.30 1961 Special Dividend (RS and W Policies) 5-17\
5.31 1963 Special Dividend (V Policies Only) 5-18

SUBCHAPTER 5. SPECIAL AND TERMINATION

DIVIDENDS ON USGLI

5.32 Special Dividends on USGLI Policies 5-19\
5.33 Termination Dividends (USGLI) 5-19

5-ii

May 20,1977 M29-1, Part I\
change 7

CHAPTER 5. DIVIDENDS

SUBCHAPTER 1. DIVIDENDS FOR CURRENT YEARS

5.01 GENERAL

a\. The authority for payment of dividends on NSLI (National Service
Life Insurance) and USGLI (United States Government Life Insurance) is
contained in 38 U.S.C. 706 and 744. They are payable from gains and
savings as determined by the Administrator, and are payable on the day
before the anniversary date of the eligible policy unless the
Administrator shall declare them payable on some other date.

b\. Dividends on Government Life Insurance are referred to as annual or
regular dividends, special dividends, or termination dividends. For the
most part they are payable on the life contract; however, both regular
and special dividends have been paid on some TDIP (total disability
income provisions) attached to NSLI policies. Information on prior
years\' dividends is included in subchapters 2, 3, 4 and 5 \[ \] -

c\. The dividend rate scales are published in M29-2 (NSLI) and M29 A
(USGLI) series.

d\. Dividends are not payable on insurance:

\(1\) Issued under the provision of section 602(cX2) of the NSLI Act (H
insurance).

\(2\) Issued under the provisions of 38 U.S.C. 722 \[ \] or section 620
\[ \] of the NSLI Act (RH \[ \] insurance).

\(3\) \[(Deleted by change 7.)\]

\(4\) Issued under the provisions of 38 U.S.C. 704(c). Modified life
converted or exchanged \[ \] with a policy prefix of H, \[or\] RH \[ \]
or \[insurance\] issued under 38 U.S.C. 725 with policy prefix in the J
series.

\(5\) Issued under the ordinary life plan to replace the amount of
insurance reduced under a nonparticipating modified life plan issued
under 38 U.S.C. 704(c) or 725 (H, RH, \[ \] J, JR, or JS).

\(6\) Issued under the provisions of 38 U.S.C. 725 (J, JR or JS
insurance).

\(7\) On which premiums are waived under the provisions of 38 U.S.C. 724
(inservice waiver), or 38 U.S.C. 7l2d (disability waiver) during the
period such waiver is in effect.

\(8\) Policies which are canceled: Dividends are not forfeited when
insurance is canceled under 38 U.S.C. 711 and 754 (persons guilty of
mutiny, treason, spying or desertion, or who, because of conscientious
objections refuse to perform service in the Armed Forces, etc.).
Forfeiture under either of those sections applies only to the rights to
insurance but does not affect the contract values existing on the date
of cancellation.

\(9\) Policies fraudulently obtained even though premiums paid before
the date of fraud decision are retained.

\(10\) Policies fraudulently reinstated from the date of reinstatement
even though premiums from the date of reinstatement to the date of fraud
decision are retained. Dividends earned before the fraudulent
reinstatement are payable.

e\. When a modified life policy \[has been\] reduced because the insured
reached age 65 or 70, depending upon the particular policy, the dividend
is computed in the usual way and then doubled to compensate for the
reduction. If special ordinary life was purchased when the modified life
was reduced, dividends on the modified life are computed as provided
above and dividends on the special ordinary life are computed in the
usual way. \[The doubling of dividends applies only to those reduced
modified life policies on which premiums are being paid or waived and
does not include paid-up additions which may be attached to these
policies, or reduced paid-up insurance (how paid 2).\]

f\. An annual dividend will be reduced to offset a lien indebtedness
before it is applied to purchase paid-up additions.

g\. When dividends are authorized or authorized and made pending, the
transaction history print line will include dividends on the parent
policy, the life paid-up additions and the endowment paid-up additions,
if all three are present.

5-1

M29-1, Part I May 20,1977\
change 7

5.02 ELIGIBILITY

a\. Accounts on which premiums are paid and earned for at least 1 month
in the dividend year are eligible to participate in dividends for that
year. (The dividend year is the 12-month period from the preceding
anniversary date to the current anniversary date of the policy). Paid-up
policies are eligible to participate in dividends; however, no dividend
has been paid on reduced paid-up special endowment at age 96. Insurance
in force as extended term insurance is eligible to participate; however,
dividends are not currently being paid on extended term which arose from
a modified life plan or which arose from any USGLI plan. The first
dividends on modified life and the special endowment at age 96 were paid
in 1969.

b\. For dividend purposes, premiums are considered paid if paid by
direct remittance or a deduction from service or retired pay, deduction
from benefit payments, employee payroll payments, if waived under
section 712 or 748 for total disability (except 712d), deductions from
policy loans, application of dividends to premiums, or if liens are
established to pay missing premiums. Dividends are not payable for
\"skip months\" on term accounts as the premiums for these months are
not paid.

c\. When paid-up additions are changed because of a change of plan, the
paid-up additions will be entitled to dividends from the effective date
of the paid-up additions or from the last anniversary date through which
dividends have been credited on the paid-up additions, whichever is
later, to the date of change. The changes occur when an endowment plan
is changed to a life plan, an endowment plan is changed to another
endowment plan or at the request of the insured when a life plan is
changed to an endowment plan.

d\. The dividends will be authorized as of the date of change using the
dividend rate schedule for the year of change, if available; otherwise,
the dividend rate schedule for the prior year.

5.03 WHEN PAYABLE

a\. The dividend for each eligible policy is payable on the day before
the policy anniversary date unless the policy is terminated sooner by
death or surrendered for cash. (On extended term insurance policies, the
anniversary date is the anniversary date of the parent policy.)
Dividends may be authorized in the 11th month if the premium for the
10th month has been paid and the dividend is sufficient to pay premiums
for both the 11th and 12th months.

b\. Dividends due on death and cash surrender cases for the months after
the policy anniversary up to the date of termination will be paid at the
time of settlement. They will be computed in the same manner and at the
same monthly rate as regular dividends, using the last year\'s dividend
rate if the \[rate for the current year\] is not available. For
accounting and other purposes, these dividends will be \[paid as
settlement dividends.\] Dividends due on matured endowment policies are
also paid at time of settlement.

5.04 DIVIDEND MONTHS PAYABLE

a\. In reviewing an account for the current dividend, months for which
premiums are paid and earned will be counted:

From the:

\(I\) Anniversary date in the preceding calendar year, if the account
was effective before that date; or

\(2\) Effective date, if the account was established by issue, renewal,
or current date conversion effective in the preceding calendar year; or

\(3\) Date the change became effective, if the account was established
by retroactive conversion, division, or change of permanent plan after
the anniversary of the account in the preceding calendar year.

To the:

\(1\) Current anniversary, if the account was active to that date, or
the date of lapse h if before the current anniversary; or

**(2)** Effective date of change, if the account was closed by
conversion, consolidation, or change of **permanent** plan before the
current anniversary; or

\(3\) Premium due date following the date of death, if death was before
the current anniversary and the insurance was in force; or

5-2

October 1, 1973 M29-1, Part 1\
Change 5

From the:

\(l\) Anniversary date in the preceding calendar year, if the account
was effective before that date; or

\(2\) Effective date, if the account was established by issue, renewal,
or current date conversion effective in the preceding calendar year; or

\(3\) Date the change became effective, if the account was established
by retroactive conversion, division, or change of permanent plan after
the anniversary of the account in the preceding calendar year.

To the:

\(l\) Current anniversary, if the account was active to that date, or
the date of lapse, if before the current anniversary; or

\(2\) Effective date of change, if the account was closed by conversion,
consolidation, or change of permanent plan before the current
anniversary; or

5-2a

December 22, 1978 M29-1, Part 1\
Change 8

\(4\) Premium due date following the month in which a policy matured
because of total and permanent disability provided the premium for that
month was paid; or

\(5\) Premium due date following the date of surrender if surrender was
before the current anniversary and the insurance was in force.

NOTE: When surrender is for paid-up insurance, a dividend is payable on
the parent contract up to the date of surrender for paid-up insurance
and on the paid-up insurance to the anniversary date of the parent
contract.

b\. Dividend months payable on NSLI extended insurance accounts will be
counted as follows:

From the:

\(1\) Anniversary month of the parent policy in the preceding calendar
year if the parent policy lapsed on or before that month; or

\(2\) Month of lapse of the parent policy (effective month of extended
term insurance) if lapse occurred during the current dividend year.

To the:

\(I\) Current anniversary month of the parent policy, provided extended
insurance was in force at the end of the dividend year; or

\(2\) Calendar month in which extended insurance expired, or calendar
month of death, if this occurred before the anniversary month of the
parent policy.

\(3\) Premium due date following the premium month in which the extended
term insurance was surrendered for its cash value.

NOTE: When indebtedness exceeds the reserve and insurance is
automatically surrendered, dividends are payable only for the complete
policy months the insurance was in force after the preceding anniversary
date. For example, when the anniversary date is November 1 and the
insurance is terminated March 15, the current dividend will be for 4
months, November through February.

5.05 DISPOSITION OF DIVIDENDS OF LESS THAN \$1

a\. When the account is on a premium-paying basis and the dividend
option is cash, dividends of less than \$1 will be disposed of as
indicated below:

\(1\) When the gross dividend is less than \$1 and there is no
indebtedness on the account, the payment will be disbursed.

\(2\) When part of the dividend is used to pay a lien or shortage and
the balance of the dividend is less than \$1, the balance will be
retained as an overage. The system will release VA Form 29-5885,
Information About Your Insurance, with an appropriate message.

b\. When the account is on a premium-paying basis and the dividend
credit balance is less than \$1, refund will

not be made on an initial request unless it is indicated that the
insured is aware that the balance is less than \$ 1.

5.06 DIVIDEND OPTIONS

a\. There are six options for disposition of dividends. They are:

\(1\) Dividend credit.

5-3

M29-1, Part I December 22,1978

Change 8

\(2\) Cash.\
(3) Deposit (permanent plans only).\
(4) Premium.\
(5) Indebtedness.\
(6) Paid-up additions (NSLI only).

b\. A request for an option other than one of the above, will be
rejected and the insured advised of the available options.

5.07 SELECTION OR CHANGE OF DIVIDEND OPTION-COMPETENT VETERANS

a\. The insured, while competent, may select or change a dividend
option. In the absence of a selection, dividends are held under the
credit option. The insured or the insured through an attorney-in-fact,
if the insured gives specific delegations of authority to the
attorney-in-fact, may request withdrawal of dividend credit or deposit
moneys.

b\. Changes of option except to paid-up additions, may be made at any
time, but such change will not affect the disposition of dividends which
became payable before the date of the request for change except as
follows:

\(l\) When the insured requests withdrawal from dividend credit, unpaid
premium(s) (insurance and/or TDIP) for the month in which the refund is
being made will be withdrawn from dividend credit prior to refund.

\(2\) When the credit option is in effect on the anniversary date and a
request for cash, premium, or deposit option is received postmarked
after the anniversary date but before the dividend is processed, the new
selection will be honored. However, any amount required for premiums
under the credit option will be applied.

c\. Care will be exercised to distinguish between requests which are
intended only to change the disposition of future dividends or only to
withdraw dividends held under the credit or deposit option. When the
request is not specific or the intent of the insured is not clear, the
insured will be asked to clarify the request before any action is taken.

d\. When the insured has more than one policy and does not indicate
otherwise, it will be assumed that the selection or change of option
covers all policies, provided the selected option is acceptable on all
policies.

e\. The effective date of selection or change of dividend option will be
the date the request is mailed or otherwise delivered to the VA.

5.08 SELECTION OR CHANGE OF DIVIDEND OPTION-INCOMPETENT VETERANS

a\. Dividend option selections, requests for change of dividend option
or requests for withdrawals from dividend credit or deposits, submitted
by a legal guardian (includes guardian, conservator, curator, committee
or trustee appointed by court order) \[and requests for withdrawals from
dividend credit or deposits submitted by a Federal fiduciary\] and
certified by a Veterans Services Officer, are acceptable. When the
amount is less than \$350, the refund is made on the basis of the latest
fiduciary of record (except on Philippine accounts) and VA Form 29-504,
Notice of Payment Due Incompetent Veteran, is forwarded to the Veterans
Services Officer. When the amount is \$350 or more, current (within 6
months) certification \[ \] is required. On Philippine accounts, the
dividend check will be addressed to the guardian \[/fiduciary\] in care
of the Veterans Services Officer, Manila regional office, regardless of
the amount of the dividend.

•

5A

December 22, 1978 M29-1 Part I\
Change 8

b\. When notice of termination of incompetency is received, the folder
will be examined for record of any change of dividend option made by the
legal guardian. If there was such a change, the insured will be advised
of the option in force and that such option will remain in force unless
a change is requested.

c\. Selections \[or\] requests for change of dividend option \[ \]
submitted by a \[Federal fiduciary\] or other person acting in behalf of
the insured, or by the insured while incompetent, are not acceptable.
Unacceptable selections or requests will be noted as such and filed in
the insurance folder. An explanation will be sent to the person making
the selection or request unless that person is the incompetent veteran.
If the request is from the incompetent veteran, the explanation will be
sent to the fiduciary. If denial of the request for \[ \] change of
option is protested, \[ \] the case will be sent to the Chief, Insurance
Program Management Division (290) with a statement of \[the facts\].

d\. When an incompetent veteran is hospitalized in a VA \[medical
center\] and a legal guardian has not been appointed, the director of
the \[medical center\] automatically becomes the trustee of personal
funds of the veteran.

5.09 CREDIT OPTION

a\. This option provides for the retention of dividends as a credit with
interest, to pay premiums monthly to prevent lapse. If the insured fails
to pay a premium when due or within the time allowed, a monthly premium
is withdrawn from the dividend credit balance.

b\. Under the credit option, a dividend for the current year is subject
to automatic application for the 11th and 12th month premiums provided
premium for the 10th month of the policy year has been paid and the
dividend amount is sufficient to pay both the 11th and 12th month
premiums. Dividends earned on one policy of an insured may be applied
automatically in payment of:

\(1\) Due and unpaid premiums on any other policy of the insured
regardless of the insurance fund;

\(2\) Unpaid premiums on expiring or renewed term contracts, or both,
when premium requirements to effect renewal or conversion have not been
met;

\(3\) Unpaid premiums in connection with a change of permanent plan or
other contract change, provided the dividend became payable before the
expiration of the grace period allowed for payment of the unpaid premium
involved.

c\. Dividend credit may be placed on deposit on the same permanent plan
upon request of the insured. A dividend credit under one contract may
never be transferred to a deposit account on another contract.

d\. When a permanent plan is divided, the dividend credits will be
similarly divided. When two or more permanent plans are consolidated,
dividend credits will also be consolidated.

e\. Upon conversion of all or part of a term policy, the disposition of
dividend credit will be as indicated below.

\(I\) When a term policy is converted or a part is converted and the
balance of the term insurance is discontinued, the entire dividend
credit on the term contract becomes the credit account on the permanent
plan policy. This credit option continues unless the insured requests a
change of option. Although the deposit option was not available before
conversion, it becomes available upon conversion. The entire credit and
future regular dividends may then be placed on deposit, upon request of
the insured.

\(2\) When part of the term policy is converted and the balance of the
term insurance is continued in force, the dividend credit, as of the
date of conversion, is divided into two credit accounts in the same
proportion as the

1\.

5-5

M29-1, Part I December 22, 1978\
Change 8

basic term contract is divided. The credits on the permanent plan policy
may be changed to deposit upon request . of the insured. The credits on
the term plan may not be changed to dividend deposits.

\(3\) When part of a term policy is converted, part is continued as term
insurance and the balance is discontinued, the dividend credit is
divided into two accounts. The division is in the same proportion as the
face amount of the permanent plan and the face amount of the term
insurance continued in force relates to the combined total of the face
amounts of the two policies. The credit on the permanent plan may be
changed to deposit upon the request of the insured.

\(4\) When part of a term policy is converted and any part of the
remainder discontinued, the dividend credit for the discontinued term
insurance may not be retransferred, if that insurance is later
reinstated.

f\. When final lapse action is taken on a term policy, the option in the
master record will not be changed. When there is an existing dividend
credit which could not be used to prevent lapse, it will be disposed of
as indicated below:

\(1\) If there are additional policies in force other than as extended
term or paid-up insurance, transfer the credit to an active account.

\(2\) If there are no additional policies or if the additional policies
are in force as extended term insurance, the credit will be refunded
provided it is \$1 or more. If it is less than \$1, it will be
transferred to the appropriate variance account.

g\. When final lapse action is taken on a permanent plan of insurance,
the option in the master record will not be changed. On single-policy
cases, the dividend will be paid in cash if the how paid code is 1 (not
in force) or 4 (extended term insurance). On multiple-policy cases, the
dividend will be authorized as **a** pending disbursement if the how
paid code is 1 and as Public Law 36, 82d Congress credits if the how
paid code is 4. When a pending disbursement is created, clerical action
is required to determine if the dividend is to be paid in cash or
transferred to an active account. When there is an existing dividend
credit on multiple-policy cases which could not be used to prevent
lapse, it will be disposed of as indicated below:

\(I\) Retained on the account on which it was earned if that account is
on extended term insurance.

\(2\) Transferred to an active account if the lapsed policy is not in
force as extended term insurance.

h\. If the how paid code is 2, reduced paid-up, the dividend is paid in
cash.

5.10 PREMIUM OPTION

a\. This option provides for application of dividends for payment of
premiums in advance on the policy on which the dividend is earned. Since
dividends are payable on the day before the policy anniversary date and
that date is within the period allowed for payment of the 10th month of
the policy year, the dividend is subject to application as premiums
provided the:

\(l\) Premium for the 10th month of the policy year has been paid;

\(2\) Dividend is sufficient to pay premiums for the 11th and 12th
months.

b\. The premium option is not valid under the conditions listed below:

\(I\) Premiums are being paid by allotment from service pay, payroll
deductions, or deductions from VA benefits.

\(2\) Premiums are waived because of total disability.

•

5-6

December 22,1978 M29-1, Part I\
Change 8

\(3\) After the last dividend which can be applied to pay premiums on
life and/or TDIP, if any, on a limited payment life policy has been
authorized.

\(4\) The policy is lapsed and an application for reinstatement is not
pending.

\(5\) The policy is surrendered for paid-up insurance.

c\. If the insured selects the premium option and one of above
conditions exists, the insured will be advised that the option is
unacceptable and furnished the necessary form for change of option. The
option of record will not be changed if it is a valid one.

d\. When the premium option on a policy becomes invalid for one of the
reasons listed below, the option will be changed to the credit option
and the insured advised of that action and the other options available.

\(I\) Premiums are being paid by allotment from service pay, payroll
deductions, or deductions from VA benefits.

\(2\) Premiums are waived because of total disability.

\(3\) The last dividend which can be applied to pay life and/or TDIP
premiums on a limited payment life policy has been authorized. (When an
indebtedness exists on the policy and there are no other policies on a
premium-paying basis, the option will be changed to the indebtedness
option instead of the credit option provided no further premiums are
due.)

e\. When the premium option becomes invalid because of lapse, the
following rules will apply:

\(1\) Term and Permanent Plan Without Extended Term Insurance. The
dividend will be paid in cash on the policy anniversary date provided
there are no other policies in force by payment or waiver of premium. On
single- policy cases, payment is automatic. On multiple-policy cases
where the how paid code is 1, the dividend is established as a pending
disbursement transaction with a 970 callup. Clerical action is required
to determine if the dividend should be paid in cash or transferred as a
dividend credit to an account in force by payment or waiver of premium.
When the how paid code is 4, the dividend is authorized under the credit
option.

\(2\) Permanent Plans With Extended Term Insurance. On single-policy
cases, the system will automatically pay the dividend in cash. On
multiple-policy cases, the dividend will be authorized as Public Law 36
credits.

f\. When the how paid code is 2 (reduced paid-up insurance), the
dividend will be paid in cash.

5.11 DEPOSIT OPTION

a\. This option may be selected on paid-up policies and other permanent
plans in force other than as extended term insurance. If this option was
selected before the date of lapse, the option will not be changed
without a valid request. However, dividends becoming due on a lapsed
policy (how paid code 1 or 4) will be paid in cash even though the
master record shows the deposit option.

b\. Disposition of Dividends on Deposit on Lapsed Policies. Dividends on
deposit plus interest to the date of lapse are used with the policy
reserve in calculating the period of extended term insurance and pure
endowment, if any. When the total amount of money, less any
indebtedness, is more than sufficient to meet the conditions described
below, the amount not required will be retained and the insured advised
that it is refundable upon request.

\(1\) **Endowment Plans.** The amount available is more than sufficient
to purchase extended term insurance to the end of the endowment period
and pure endowment in excess of the face amount of the policy, less
indebtedness.

5-7

M29-1, Part I December 22,1978\
Change 8 •

**(2) Life Plans.** The amount available is more than sufficient to
purchase extended term insurance to the end of the mortality table on
which premiums were established.

c\. Request for Refund of Dividends on Deposit After Date of Lapse.
Dividends on deposit may not be refunded after the date of lapse. If an
insured requests refund after the expiration of the grace period but
within 31 days thereafter, the requested amount will be refunded minus
three monthly premiums. The insured will be advised that it was
necessary to place the insurance in force before the refund, and he or
she will be allowed l5 days from the date of the letter to return the
payment for cancellation of the informal reinstatement. The explanation
will include a comparison between the coverage provided when dividends
on deposit are used with the reserve and when they are not. If the
payment is returned, the account will be restored to the status it would
have been if premiums had not been deducted and the refund made. If the
insured requests refund more than 31 days after expiration of the 31-day
grace period, he or she will have to meet reinstatement requirements
before the dividend deposit can be refunded.

d\. Disposition of Dividends on Deposit at Time of Surrender for Reduced
Paid-up Insurance. Dividends on deposit plus interest up to the date of
surrender are used with the reserve in calculating the amount of paid-up
insurance. In processing a surrender for paid-up insurance, the insured
will be advised that dividends on deposit will be applied to purchase
insurance unless he or she requests refund within 15 days. The letter
will give the amount of paid-up insurance that the reserve plus
dividends on deposit will purchase, the amount of paid-up insurance that
the reserve only will purchase, and the balance, if any, which will be
payable to him or her. If a reply is not received in 15 days from the
date of the letter, dividends on deposit will be applied to purchase
paid-up insurance. When the amount is more than sufficient to purchase
insurance equal to the face amount of the policy, less indebtedness, the
remaining amount will be held under the deposit option on the paid-up
policy.

e\. Re-establishment of Dividends on Deposit in Reinstatement. Upon
reinstatement of a permanent plan policy, the amount of dividend deposit
used to purchase extended term insurance is reestablished under the
dividend deposit account. Upon request of the policyholder, the amount
may be used to pay all or part of the cost of reinstatement. Any amount
used to reinstate may not later be reestablished as dividend credit or
deposit.

f\. Disposition of Dividends on Deposit Upon Division or Consolidation
of Policies. When a permanent plan is divided, dividends on deposit will
be similarly divided. When two or more permanent plans are consolidated,
dividends on deposit will also be consolidated.

**5.12 CASH OPTION**

a\. Under the cash option, payment of the dividend is by check payable
to the insured if competent. If the insured is incompetent, \[the
dividend\] is payable to a \[court-appointed guardian or a federally
appointed fiduciary, both of whom must be certified by a Veterans
Services Officer. When the amount payable is less than \$350, the refund
is made on the basis of the latest fiduciary of record (except
Philippine accounts). When the amount is \$350 or more, current (within
6 months) certification is required. On Philippine accounts, the check
will be addressed to the guardian/fiduciary in care of the Veterans
Services Office, Manila regional office, regardless of the amount of the
check.

NOTE: A VA Form 29-504, Notice of Payment Due Incompetent Veteran, will
be sent to the Veterans Services Officer if the dividend is refunded to
other than a court-appointed guardian or a Director, VA Medical Center.
A court-appointed guardian is identified as a guardian, conservator,
curator or tutor, committee, or trustee.\]

b\. Except in certain termination or settlement cases, the cash option
must be selected on or before the date the dividend is payable. However,
when the credit option is in effect on the anniversary date and a
request for cash is received postmarked after the anniversary date but
before the dividend is processed, the new selection will be honored. Any
amount required for premiums under the previous existing credit option
will be applied.

5.13 INDEBTEDNESS OPTION

**a. This option provides for application of dividends as of the policy
anniversary date to reduce an outstanding loan or lien. When there is
both loan and lien indebtedness on a policy, payment of the loan will
take precedence over payment of a lien on the same policy. When there is
no loan or lien on the policy, the dividends will be applied to a loan
or a lien on any other policy which the insured may have. If there is**
more than one other loan

5-8

May 20,1977 M29-1, Part I\
Change 7

or lien account, the dividends will be applied (in the following
precedence: (1) The largest 5 percent loan; (2) the largest 4 percent
loan; and (3) \] the largest \[ \] lien account outstanding at the time
the dividend is payable.

b\. When the indebtedness is liquidated, the option will be changed
automatically to the credit option. On a single- or two-policy case, the
system will automatically change the option when authorizing the next
dividend. If the dividend is more than sufficient to pay all
indebtedness, the amount remaining will be added to a dividend credit
balance or established as a dividend credit account on the policy from
which the dividend was authorized.

5.13.1 PAID-UP ADDITIONS OPTION

a\. \[This option became available on\] July 1, 1972, \[to\]
policyholders with V insurance \[and on January 1, l975, to
policyholders with RS and W insurance\]. Under this option the dividend
is applied as a single premium at the attained age of the insured to
purchase paid-up insurance. On \[life\] contracts, including 5-LPT
insurance, the dividend is applied to purchase paid-up life insurance.
On endowment contracts, the dividend is applied to purchase paid-up
endowment insurance that will mature at the same time as the basic
contract. Paid-up additions are always provided in dollars, not dollars
and cents. When a paid-up addition is calculated, the amount is rounded
to the closer dollar. The paid-up insurance has cash and loan values.
Dividends will be paid on it, but at a lower rate than the basic policy.
The \$10,000 maximum of insurance does not apply to accounts involving
the paid-up additions. The beneficiary designation on the basic contract
will apply to the paid-up additions. Accumulated dividend credits and
deposits could have been used to purchase paid-up additions if
application in writing by the insured was submitted on or before
December 31, 1972. After that date dividend credits and deposits may not
be used to purchase the paid-up additions.

b\. Insureds who received their l972 dividend in cash were offered the
opportunity of returning their dividend check or an amount of money
equal to or less than their 1972 dividend to purchase the paid-up
additions. The return of the check or money must have been made during
the lifetime of the insured and on or before December 31,1972.

c\. The insured may not select this option if the insurance is lapsed
(including on extended insurance) on the date of selection.

d\. Dividends due on lapsed or extended insurance accounts may be used
to purchase paid-up additions, if a paid-up addition \[exists and the
paid-up additions\] option \[is\] of record on the date of lapse. If the
option is changed from the paid-up additions option while the account is
lapsed or on extended insurance, the option may not be changed back to
the paid-up additions option until the account is reinstated.

e\. The final dividend due on maturing endowment accounts may not be
used to purchase paid-up additions, even though there are existing
paid-up additions and that is the dividend option of record, unless the
dividend is paid on an accelerated basis.

f\. Settlement dividends will not be used to buy paid-up additions, but
will be paid in cash, even though there are existing paid-up additions.
No settlement dividend was payable on the paid-up additions prior to the
policy anniversary date in 1972.

g\. The reserve of the paid-up additions will be combined with the
reserve of the basic policy when computing the loan value of the policy.
There is no waiting period before a loan may be made on the paid-up
additions.

\(1\) When the basic policy is 5-LPT, a loan may be granted on the
paid-up additions only. Any unpaid term insurance and/or TDIP premiums
will not be deducted from the loan. However, a loan may be granted to
pay premiums or to satisfy a request made by the insured.

\(2\) The reserve of the paid-up additions will be used to prevent the
basic policy from being terminated because the loan indebtedness equals
or exceeds the policy reserve.

5-9

M29-1, Part I May 20,1977

Change 7

h\. There is no waiting period before the paid-up additions are eligible
for cash surrender.

\(1\) When a basic policy is surrendered for cash, paid-up life
additions may be retained if the insured so desires. When a basic
endowment policy is surrendered for cash, the paid-up endowment
additions must be surrendered also.

\(2\) When a policy is surrendered for cash or reduced paid-up insurance
and there are both paid-up additions on the policy and an outstanding
loan, the ratio between the reserve on the paid-up additions and the
reserve on the basic policy will determine the amount of loan balance on
the paid-up additions after the surrender.

\(3\) When paid-up additions only are surrendered for cash, the proceeds
are payable in a lump sum.

i\. The reserve of the paid-up additions will not be used to prevent
lapse of the parent policy.

\(1\) Paid-up additions will be retained in the master record when the
basic policy is lapsed or at expiration of extended insurance. The basic
policy will be set up for purge but will remain on tape until the
paid-up additions are deleted from the master record.

\(2\) When a policy lapses and is going to be placed on extended
insurance and there are both paid-up additions on the policy and an
outstanding loan, the ratio between the reserve on the paid-up additions
and the reserve on the lapsed basic policy will determine the amount of
loan that will be collected from the lapsed basic policy and the amount
of loan that will remain on the paid-up additions.

j\. When two or more 5-LPT policies with paid-up additions are
consolidated and converted, the paid-up additions will also be
consolidated and retained as part of the new permanent plan.

\(1\) When a policy with paid-up additions is split into two or more
policies, the paid-up additions will be split proportionately. If the
amount of paid-up additions to be split is an odd amount, the parent
policy will be assigned the extra dollar.

\(2\) When a term policy with paid-up additions is converted to an
endowment policy, dividends earned after the conversion will be applied
to purchase paid-up endowment additions. This will result in two paid-up
additions segments:

\(a\) The paid-up life additions purchased before the conversion.

\(b\) The paid-up endowment additions purchased after the conversion.

k\. When a permanent plan life policy with paid-up additions is changed
to another life contract, no adjustment of the paid-up additions is
required.

\(1\) When a permanent Plan life policy with paid-up additions is
changed to an endowment contract, the paid-up life additions may be
retained, without any adjustment, or the reserve of the paid-up life
additions applied to purchase paid-up endowment additions based on the
basic endowment policy and the attained age of the insure d, or to
purchase the same amount of paid-up endowment additions as there were
paid-up life additions with the insured paying the difference in
reserve.

\(2\) When an endowment policy with paid-up endowment additions is
changed to a life contract, the paid-up endowment additions may be
exchanged for the same amount of paid-up life additions, with the
difference in reserve paid in cash to the insured, or, at the request of
the insured, used to pay premiums or applied to an outstanding loan. The
paid-up endowment additions may not remain as endowment additions. Also,
the amount of paid-up life additions may not exceed the amount of
paid-up endowment additions.

l\. When the basic policy is reduced, it is not necessary to reduce the
paid-up additions, except at the request of the insured.

5-10

December 22, 1978 M29-1, Part I\
. Change 8

m\. When an insured reinstates a lapsed policy and the dividend option
on the date of lapse was paid-up additions, any earned dividends payable
at reinstatement may be applied to purchase paid-up additions. if the
option was other than paid-up additions, dividends payable at
reinstatement may not be used to purchase paid-up additions.

\(1\) If a lapsed account on extended insurance is reinstated and the
dividend option on the date of lapse was paid-up additions, the
difference between the dividends paid on the extended insurance and the
dividends payable at reinstatement may be applied to purchase the
paid-up additions. if the option is changed from the paid-up additions
while the extended insurance is in force or the option was not paid-up
additions on the date of lapse, dividends payable at reinstatement may
not be used to buy the paid-up additions.

\(2\) If an account was reinstated during the year 1972 and there were
dividend credit and/or deposit balances, those credits and deposits
could have been used to purchase paid-up additions if the request was
postmarked on or before December 31, 1972.

n\. Paid-up endowment additions mature concurrently with the basic
policy and will be paid under the same settlement option. When an
endowment policy with paid-up endowment additions and paid-up life
additions matures, and there is an outstanding loan, the loan will be
paid from the proceeds of the maturing endowments.

o\. On death cases, the dividend for the year in which death occurs will
not be applied to purchase paid-up additions unless the date of death is
on or after the PDN (processing day number) on which the computer system
created the paid-up additions. If the date of death is an earlier day
number and paid-up additions have been credited for that year, the
action will be reversed and the dividend which had been applied to
purchase paid-up additions will be included in the settlement as a
dividend.

p\. When an insured with a dividend credit balance and a dividend
deposit balance made application prior to December 31, 1972, to use only
part of the total balance to purchase paid-up additions, the dividend
deposit balance was used first leaving all or part of the dividend
credit balance.

q\. When a dividend credit or deposit was used to purchase paid-up
additions, no part of the dividend could have been used to satisfy a
lien indebtedness.

r\. When the basic policy is not in force (how paid 1) and a dividend is
authorized on paid-up additions, if the amount of the dividend will buy
\$0.49 or less of paid-up additions, the amount of the dividend will be
entered or added to any existing credit in the premium credit or
shortage field of the master record.

s\. When the basic policy is in force (other than how paid 1) and a
supplementary dividend is authorized, if the amount of the supplementary
dividend will buy \$0.49 or less of paid-up additions, the amount of the
supplementary dividend will be entered or added to any existing credit
in the premium credit or shortage field of the master record.

t\. When an authorized dividend is entered in the premium credit or
shortage field of the master record as provided in subparagraphs r and s
above, a dividend notice will not be released to the insured.

u\. When the amount of an authorized dividend will buy more than \$0.49
of paid-up additions but less than \$ 1, the amount of the dividend will
be used to buy paid-up additions in the amount of \$ l.

5.14 INTEREST RATES

a\. Effective \[January 1, 1979,\] the interest earned on NSLI dividend
credit and deposit accounts is \[53/4\] percent per annum. \[The
interest rates for prior years are shown in exhibit A.\]

b\. Effective \[January 1, 1979,\] the interest earned on USGLI dividend
credit and deposit accounts is\[53/4\] percent per annum. \[The interest
rates for prior years are shown in exhibit B.

5-11

M29-1, Part I December 22,1978

Change 8

EXHIBIT A. INTEREST RATE CHART

(NSLI)

Percentage\
[Period]{.underline} Rate

Prior to the 1965 policy anniversary date 3\
1965 policy anniversary date through December 18, 1967 3/**4**\
December 19, 1967 - December 31, 1970 4\
January 1, 1971 - December 26, 1971 **4/4\
**December 27, 1971 - December 31,1974 4/2\
January 1, 1975 - December 31, 1975 4**3**/4\
January 1,1976-December 31,1977 5

January 1, 1978 - December 31, 1978 5/2

EXHIBIT B. INTEREST RATE CHART

(USGLI)

Percentage\
[Period]{.underline} **[Rate]{.underline}**

Prior to December 19, 1967 3/2\
December 19, 1967 - December 26, 1971 4

December 27, 1971 - December 31, 1974 4/4\
January 1, 1975 - December 31, 1975 4/2

January 1, 1976 - December 31, 1977 43/4\
January 1, 1978 - December 31, 1978 5/4\]

5.15 CALCULATION OF INTEREST

a\. On and after January 1, 1964, interest is earned on dividends held
under the credit or deposit option for less than a full policy year.
Prior to that date, interest was computed only on the dividend balance
as of the day preceding the policy anniversary.

b\. Interest is compounded annually on the day preceding the policy
anniversary date by obtaining the annual interest on the dividend
balance and adding to it any interest which has accumulated since the
last policy anniversary date due to withdrawals before the end of the
current policy year.

c\. To compute interest on amount withdrawn prior to the end of the
current policy year, daily interest factors are used. That interest is
referred to as *accumulated interest* and is held as such until the end
of the policy year, at which time it becomes a part of the total annual
interest. The following are exceptions:

\(1\) Under the dividend credit option, part or all accumulated interest
will be used if needed to prevent lapse.

\(2\) When the full amount of dividends held as credit or on deposit is
withdrawn at the request of the insured for payment in cash or
application to premiums or to an indebtedness, accumulated interest is
included.

\(3\) When the insured requests a refund of all or part of the dividends
held as credit or on deposit, interest will be calculated on the amount
refunded from the prior policy anniversary date to the day the refund is
processed. When withdrawals are made at the request of the insured for
payment of premiums or loan or lien indebtedness, interest will be
calculated to the postmark date of the request.

5-12

October 1,1973 M29-1, Part I\
Changes

5.19 NSLI DIVIDENDS

a\. Payment of regular or annual dividends on NSLI commenced in 1952;
however, two special dividends were paid prior to that date. To be
eligible for the 1954 and prior year annual dividends, premiums had to
be paid (or waived because of total disability) and earned for at least
3 months. (Exception: A dividend was payable where premiums were paid
for 1 or 2 months during the dividend year prior to establishment or
following discontinuance of an inservice waiver.) For 1955 and later
years, premiums had to be paid or waived because of total disability and
earned for at least 1 month. In addition, premium for December l954 or
any subsequent month in the 1955 dividend year had to be paid and earned
for entitlement to the 1955 regular dividend. Dividends on the
participating modified life plans of insurance were paid for the first
time in 1969.

•

5-12a

•

•

•

December 22, 1978 M29-1, Part I

. Change 8

5.16 DELAY IN REFUND OF DIVIDEND CREDIT/DEPOSIT AMOUNTS

If a second request for refund of a dividend credit/deposit is received
and action was not taken on the original request, the transaction date
for refund purposes will be the day the refund is processed.

SUBCHAPTER 2. DIVIDENDS FOR PRIOR YEARS

5.17 GENERAL

The rules and requirements for processing regular dividends for the
current and future years are in subchapter 1. This subchapter contains
information on dividends for prior years.

5.18 USGLI DIVIDENDS

a\. Payment of regular or annual dividends commenced in 1920. All
policies have not participated in each yearly dividend, and it will be
necessary to consult the dividend schedule to determine eligibility of a
policy. Some exceptions are listed below:

**(1)** **Five-Year Level Premium Term:** Dividends were not paid on any
of these policies from 1920 to 1926 and from 1933 through 1956.

**(2) Five-Year Convertible Term:** Dividends were paid on these
policies in 1932 and 1933, but no dividend was paid after that date
until 1940.

**(3) Extended Term Insurance:** Annual dividends were paid on extended
term insurance from 1920 through l929, but not after that date.
(Extended term insurance did participate in the l961 special dividend.)

**(4) Special Endowment at Age 96 Plan:** The first dividend paid on the
special endowment at age 96 plan was in 1969, but dividends were not
paid on reduced paid-up policies.

b\. Regular dividends due and payable after December 31, 1958, were held
under the credit option unless the insured requested another option.
Prior to that date dividends were paid in cash or held on deposit unless
the insured requested that they be applied to pay premiums or an
indebtedness.

c\. Special dividends were paid in 1949,1953, 1958 and 1961. Termination
dividends were paid on certain policies from 1953 through 1961.

5.19 NSLI DIVIDENDS

a\. Payment of regular or annual dividends on NSLI commenced in 1952;
however, two special dividends were paid prior to that date. To be
eligible for the 1954 and prior year annual dividends, premiums had to
be paid (or waived because of total disability) and earned for at least
3 months. (Exception: A dividend was payable when premiums were paid for
1 or 2 months during the dividend year prior to establishment or
following discontinuance of an inservice waiver.) For 1955 and later
years, premiums had to be paid or waived because of total disability and
earned for at least 1 month. In addition, premium for December 1954 or
any subsequent month in the 1955 dividend year had to be paid and earned
for entitlement to the 1955 regular dividend. Dividends on the
participating modified life plans of insurance were paid for the first
time in 1969.

b\. Public Law 36, 82d Congress, approved May 18, 1951, provided that
regular dividends becoming due and payable after January 1, 1952, would
be held under the credit option unless the insured requested one of the
other options. (38 U.S.C. 707)

c\. The 1948 special dividend was the first dividend paid on NSLI and
the only dividend for which an application was required. The rules
covering the payment of this dividend and other special dividends are in

, subchapter 4.

5-13

M29-1,Part I December 22,1978\
Change 8 .

d\. Reduce d paid-up policies participate in annual and special
dividends. Dividends on extended term insurance for V policies commenced
in 196I. Dividends on extended term insurance for W policies (the pure
endowment portion only) commenced in 1975.

e\. Annual dividends were paid on disability provisions attached to NSLI
policies from 1956 through 1958. Special dividends were paid on the \$5
TDIP (ND) provisions in 1959 and 1964. The rules covering payment of
these dividends are in subchapter 3.

**5.19.1 VSLI DIVIDENDS**

a\. Public Law 93-289, effective May 24, 1974, provided for policies
prefixed by RS and W to become participating policies. These policies
shared in the regular dividends for the first time, commencing January
l, 1975.

b\. The dividends will be authorized and paid under the same options and
rules now in effect on other NSLI participating policies. The exceptions
are as follows:

\(1\) The gross minimum dividend payable for 12 months is \$1.20. There
is no minimum for periods covering less than 12 months.

\(2\) Dividends authorized for 12 months in the amount of \$1.20 will
not be adjusted as a result of lapse, reinstatement, contract change,
surrender or death.

\(3\) No dividend will be payable on any terminal action, such as death,
maturity or surrender processed and finalized for settlement prior to
January 1, 1975.

\(4\) No dividend is payable on contract changes, such as conversions,
change of plan or reduction processed prior to January 1,1975, with an
effective date in 1974.

\(5\) No dividend is payable on cases in which final lapse action was
taken prior to January 1, 1975.

\(6\) No dividends are payable on extended term insurance cases except
when there is pure endowment. On such cases, the dividend is payable
only on the pure endowment amount.

\(7\) No dividends are payable on paid-up additions only.

\(8\) No dividends are payable on special ordinary life insurance
policies.

c\. Action dates for whole life paid-up additions will be based on
maturity at age 96.

5.20 DATE OF PAYMENT OF REGULAR DIVIDENDS

a\. Regular or annual dividends are due and payable on the day before
the policy anniversary date unless the Administrator declares them
payable on some other date.

b\. Dividends for the following years were paid on an accelerated basis:

1961 l963 1964 l965 1967 1972 1975 1976 \[1977\]

5.21 ACCELERATED PAYMENT OF REGULAR DIVIDENDS

a\. The 1961 dividend was deemed payable on the day preceding the March
premium due date. The 1963, 1964 and 1965 dividends were deemed payable
on the day preceding the January premium due date. The 1967, 1972, 1975
and 1976 dividends were deemed payable the day preceding the February
premium due date. \[The 1977 dividend was deemed payable on the day
preceding the April premium due date.

NOTE: Dividends on accounts with the paid-up addition option were paid
on the customary policy anniversary

date.\] .

5-14

May 20,1977 M29-1,Part I\
change 7

\(l\) **1948 and 1951 Special Dividend:** In the reinstatement of a
participating NSLI policy, a dividend or supplemental dividend may be
due if the number of paid months in the 1948 and/or l951 dividend period
is increased by payment of premiums in arrears.

\(2\) **1953 Special Dividend:** A USGLI policy surrendered under
section 5 of the Servicemen\'s Indemnity and Insurance Acts of 1951
prior to 1953 and reinstated or replaced under 38 U.S.C. 781 may be due
a 1953 special dividend. The dividend payable on such a case is
calculated by adjusting the 1953 special dividend for the period the
policy was in force prior to 1953 and by adding the amount of interest
earned on the fund between certain dates. The amount payable in each
case will be determined by the Office of the Chief Actuary.

b\. The payment of the reserve in antedating a policy does not make it
eligible for a dividend for the period covered by the payment of the
reserve.

5.23 CALCULATING INTEREST WHEN PAYING DIVIDENDS EARLY

a\. The formula for calculation of interest on the 1964, 1965, and 1967
accelerated dividends under the dividend credit/deposit options from the
January premium due date to the policy anniversary date was the amount
of the accelerated dividend times interest factor equals interest.

b\. The interest rates and interest factors used in calculating interest
on dividends authorized under the dividend credit or deposit in advance
of the policy anniversary date in 1964, 1965, and 1967 are shown in
exhibit A (USGLI) and exhibit B (NSLI).

c\. The formula for calculation of interest on the 1972 accelerated
dividends under the dividend credit/deposit options from the February
1972 premium due date to the 1972 policy anniversary date is the amount
of the accelerated dividend times interest factor equals interest on
1972 dividend.

d\. The interest rates and interest factors used in calculating interest
on dividends authorized under the dividend credit or deposit options in
advance of the policy anniversary date in 1972 are shown in exhibit C
(USGLI) and exhibit D (NSLI). The interest factors for the 1972
accelerated dividends have been expanded to five places.

5-14.1

•

October 16,1972 M29-I,Part I

Change 4

EXHIBIT A. INTEREST FACTOR CHART - USGLI

Policy Number of Days Interest Factor (31/2%)

Anniversary Month

January None None\
February 3l .0030\
March 59 .0057\
April 90 .0086\
May l20 .01l5\
June l51 .0l45\
July l81 .0l74\
August 2l2 .0203\
September 243 .0233\
October 273 .0262\
November 304 .0292\
December 334 .0320

EXHIBIT B. INTEREST FACTOR CHART - NSLI

Policy Number 1964 l965 and 1967

Anniversary Month of Days Interest Factor (3%) Interest Factor (31/4%)

January None None None\
February 31 .0025 .0028\
March 59 .0048 .0053

. April 90 .0074 .0080\
. May 120 .0099 .0107

June 151 .0124 .0134\
July 181 .0149 .0161\
August 2l2 .0174 .0189\
September 243 .0200 .0216\
October 273 .0224 .0243\
November 304 .0250 .0271\
December 334 .0275 .0297

(EXHIBIT C. INTEREST FACTOR CHART-USGLI

**Policy**

**Anniversary Month** **Number of Days** **Interest Factor (41/4%)**

January None None\
February None None\
March 28 .00326\
April 59 .00687\
May 89 .01036\
June 120 .01397\
July 150 .01747\
August 181 .02108\
September 212 .02468\
October 242 .02818\
November 273 .03179\
December 303 .03528

. 5-14a

M29-1, Part l October 16, l972

Change 4

EXHIBIT D. INTEREST FACTOR CHART-NSLI

**Policy**

**Anniversary Month Number of Days Interest Factor (41/2%)**

January None None\
February None None\
March 28 .00345\
April 59 .00727\
May 89 .0I097\
June 120 .01479\
July 150 .01849\
August 181 .02232\
212 .02614\
242 .02984\
273 .03366\
December 303 .03736

SUBCHAPTER 3. REGULAR AND SPECIAL DIVIDENDS ON TOTAL DISABILITY

INCOME PROVISION (NSLI)

5.24 REGULAR DIVIDENDS

a\. Effective with the 1956 regular dividend, NSLI policies with the
TDIP were classified separately from those without the provision for
dividend purposes. The gross dividend on the separately classified
policies consisted of the dividend payable on the life insurance
contract and an additional dividend on the disability provision. Regular
dividends were not payable on the disability provision after the 1958
policy year.

b\. Dividends on the disability provision were payable annually on the
date preceding the anniversary date of the life insurance, regardless of
the anniversary date of the disability provision. In addition to meeting
eligibility requirements for the dividend on the life insurance
contract, except as noted in subparagraph d below, the TDIP premium for
at least l month, payable to the NSLI fund, had to be paid and earned
for the policy to be eligible for the TDIP dividend. The amount of
dividend was based on the number of months life insurance and disability
premiums, respectively, were paid during the policy year. The TDIP
portion of the dividend for 1956 was based on the number of months TDIP
premiums were paid between the anniversary or issue date in 1955 and the
anniversary date in 1956 of the life insurance contract. No premiums
paid before the l955 anniversary date of the life insurance contract
were counted for the TDIP dividend.

c\. When premiums were waived under 38 U.S.C. 712 and the insured
received total disability income payments, dividends were payable on the
life insurance contract, but not on the disability provision after
payments started. (See example in subpart. g(3) below.)

d\. Dividends were payable for the number of months TDIP premiums were
paid during the period a section 724 waiver was in force on the life
insurance through the 1958 policy year. When TDIP premiums on a
nonparticipating life insurance contract were payable to the NSLI fund,
dividends were payable on the disability provision. No dividends were
payable when TDIP premiums were payable to the NSLI appropriation.

e\. TDIP dividends were disposed of under the same option as that of the
life insurance contract.

f\. Life insurance and TDIP portions of dividends were charged to the
applicable calendar year dividend expense account. Life insurance and
TDIP portions of dividends were not separated in maintaining dividend
credit and dividend deposit accounts.

5-14b

. 1

October 16,1972 M29-1, Part 1

Change 4

g\. Several examples illustrating the rules of eligibility for TDIP
dividends are shown below:

\(l\) Life insurance and TDIP effective June l, 1947, both active
through May 31, l958. Dividend for l958 payable for l 2 months on life
insurance and TDIP.

\(2\) Life insurance effective June l, l956, TDIP added December l,
l957, both active through May 3l, l958. Dividend for 1958 payable for l2
months on life insurance and 6 months on TDIP.

\(3\) Life insurance and TDIP effective June l, 1947, and premiums paid
through March 31,1958. Insured totally disabled beginning September 3,
1957, and still totally disabled May 31,1958 \[38 U.S.C. 7l2 waiver
effective October 1,1957. TDIP payments began March 3, 1958. Dividend
for 1958 payable for 12 months on life insurance (4 paid and 8 waived),
and 10 months on TDIP (4 paid and 6 waived).

\(4\) Life insurance and TDIP effective August 1, 1950. Inservice waiver
effective August 1, 1951, and still effective July 31, 1958; TDIP in
force through July 3l, 1958. Dividend for 1958 payable for 12 months on
TDIP only.

\(5\) Life insurance effective June 1, 1947, under NSLI fund lapsed
January 1,1948, and reinstated August 1, 1949, as *\"H\"* insurance
under NSLI appropriation. TDIP added September 1, 1953, as *\"ND \"*
under NSLI fund. Life insurance and TDIP active through May 31, 1958.
Dividend for 1958 payable for 12 months on TDIP only.

5.25 SPECIAL DIVIDENDS (TDIP)

a\. In July 1959 a special TDIP dividend was paid on NSLI accounts with
a \$5 ND rider. The dividend was payable as of the July premium due date
under the option of record. For those options other than cash, the
dividend was available for application to premiums or for adding to
credit/deposit accounts as of the July premium due date. The special
dividend was paid if:

. (1) The December 1958 insurance and/or TDIP premium was paid and
earned at any time prior to June 1, 1959, or

\(2\) The December l958 insurance and/or TDIP premium was waived because
of disability, or

. 5-14c

•

•

December 22, 1978 M29-1, Part I\
• Change 8

b\. When the dividend option was credit or deposit, a full year\'s
interest was added to any dividend credit or deposit balance existing on
the day the dividend was deemed payable. The current dividend was
credited after the addition. Commencing with the 1964 dividend, interest
was also allowed on the current dividend from the premium due date in
the month the dividend was deemed payable to the anniversary date of the
policy. The formula for calculating interest and the interest factors
for the different anniversary months are in paragraph 5.23. There was no
interest reversal as a result of withdrawals occurring between the date
interest was added and the policy anniversary date.

c\. When the dividend option was other than credit or deposit and there
was a dividend credit or deposit balance, a full year\'s interest was
added on the 1961, 1963 or 1964 policy anniversary date (plus 30 days).
On the 1965, 1967, 1972, 1975, 1976 and \[1977\] dividends, a full
year\'s interest was added on the following basis:

\(1\) If there was no automatic withdrawal action to the dividend credit
or deposit balance prior to the anniversary date (plus 30 days), annual
interest was added as of the anniversary date.

\(2\) When there was a withdrawal prior to the anniversary date, annual
interest was added prior to processing the withdrawal.

d\. When there was a dividend overpayment, usual rules for recovery of
indebtedness are followed except that dividend overpayments resulting
from accelerated dividends will not be deducted from the reserve
available to purchase extended term insurance or reduced paid-up
insurance.

5.22 ELIGIBILITY FOR DIVIDENDS FOR PRIOR YEARS

a\. A lapsed policy may become eligible for a regular or a supplemental
regular dividend by payment of premiums in arrears in the reinstatement
of a policy. However, the payment of premiums in arrears will not make a
policy eligible for participation in a prior special dividend with the
exceptions noted below:

\(l\) **1948 and 1951 Special Dividend:** In the reinstatement of a
participating NSLI policy, a dividend or supplemental dividend may be
due if the number of paid months in the 1948 and/or 1951 dividend period
is increased by payment of premiums in arrears.

\(2\) **1953 Special Dividend:** A USGLI policy surrendered under
section 5 of the Servicemen\'s Indemnity and Insurance Acts of 1951
prior to 1953 and reinstated or replaced under 38 U.S.C. 781 may be due
a 1953 special dividend. The dividend payable on such a case is
calculated by adjusting the 1953 special dividend for the period the
policy was in force prior to 1953 and by adding the amount of interest
earned on the fund between certain dates. The amount payable in each
case will be determined by the Actuarial Staff (299).

b\. The payment of the reserve in antedating a policy does not make it
eligible for a dividend for the period covered by the payment of the
reserve.

**5.23 CALCULATING INTEREST WHEN PAYING DIVIDENDS EARLY**

a\. The formula for calculation of interest on the 1964, 1965, and 1967
accelerated dividends under the dividend credit/deposit options from the
January premium due date to the policy anniversary date was the amount
of the accelerated dividend times interest factor equals interest.

b\. The interest rates and interest factors used in calculating interest
on dividends authorized under the dividend credit or deposit in advance
of the policy anniversary date in 1964, 1965, and 1967 are shown in
exhibit A (USGLI) and exhibit B (NSLI).

c\. The formula for calculation of interest on the 1972 accelerated
dividends under the dividend credit/deposit options from the February
1972 premium due date to the 1972 policy anniversary date is the amount
of the accelerated dividend times interest factor equals interest on
1972 dividend.

d\. The interest rates and interest factors used in calculating interest
on dividends authorized under the dividend credit or deposit options in
advance of the policy anniversary date in 1972 are shown in exhibit C
(USGLI) and exhibit D (NSLI). The interest factors for the 1972
accelerated dividends have been expanded to five places.

5-14.1

•

•

April 14, l971 M29-1, Part 1

. Change l

\(3\) The December l 958 premium on the basic policy was paid and earned
prior to June 1 , l959. or waived because of disability, and TDIP
coverage had ceased sometime prior because the insured had reached age
60.

**NOTE:** A \$5 rider surrendered for the \$10 benefit prior to January
1, 1 was eligible for the special TDIP dividend. Also, if. December 1958
became a skip month (term contract) by virtue of a reinstatement of both
the insurance and the rider prior to June 1, 1 the account was eligible
for the dividend.

b\. NSLI policies to) which a participating \$5 rider is or was attached
were eligible for the 1964 special TDIP dividend if the policy was
eligible for the 1959 special TDIP dividend and in force during any one
of the premium months of July 1963 through January 1964. For this
purpose, a policy was considered in force if the Premium for one of the
above months was timely paid or waived or was in force under extended
insurance or paid-up insurance during one of the above months. The
dividend was I25 percent of the l959 special TDIP dividend with a \$340
maximum payment. It was payable on the day before the January 1964 due
date of the eligible policy and was available for the purposes of
dividend options as of that date. Interest was added to the dividend
amount placed in the credit or deposit account from the January 1964
premium due date of eligible policy to the 1964 anniversary date of that
policy. Interest was not to be adjusted on withdrawals which occurred
between the date of interest addition and the 1964 anniversary date of
the policy.

SUBCHAPTER 4. SPECIAL DIVIDENDS ON NSLI

5.26 SPECIAL DIVIDENDS-GENERAL

a\. A special dividend is a one-time distribution of an excess in the
insurance fund. Generally, it is derived from excess interest earned or
from funds in excess of regular reserves previously set aside to provide
an additional safety margin against unexpected contingencies. However,
the first two special dividends on NSLI were mainly derived from savings
in mortality in the years prior to payment of regular or annual
dividends.

. b. Four special dividends were paid on policies on which premiums
credited to the NSLI Fund were paid and earned, or waived under section
602(n) of the NSLI Act of l940, as amended. They are referred to as the
1948, l951, 1961 and 1963 special dividend.

.

c\. A special dividend was also paid on certain RS/W policies in 1961.

\[d. No claim by an insured for payment in cash of a special dividend
declared prior to January l, 1952, will be processed unless such claim
was received within 6 years after such dividend was declared. If a claim
is received it will be returned with a VA Form 29-5785b, Reply to
Dividend Inquiry (38 U.S.C. 707 (b)). This will be considered as a
complete response without further communication.\]

5.27 1948 SPECIAL DIVIDEND (N AND V POLICIES ONLY)

a\. This dividend was based on premiums paid from the effective date of
the policy to the policy anniversary date in 1948. Payment was made
under the cash option and commenced approximately January 16, 1950. An
application for payment of the 1948 Special Dividend was required since
about two thirds of the policies were lapsed and no current address was
available. The announcement that the dividend would be paid was made in
June 1949, and applications for applying were available at all post
offices and VA offices in August 1949. These forms were associated with
records of the dividend to be paid to each individual. The first cheeks
were mailed on January 16, 1950, and by the end of 1950, over \$2.7
billion, or 98 percent of the amount due, had been paid to about 16
million veterans.

b\. The dividend rate for policyholders age 40 and under at age of issue
was 55 cents per \$ 1,000 insurance for each month the insurance was in
force. The rate decreased at the older ages. Any indebtedness due the VA
was deducted from the amount payable, and the amount deducted was shown
on the form accompanying the check. In those cases where the
indebtedness exceeded the dividend, a letter was sent.

c\. To be eligible, premiums had to be paid and earned or waived under
section 602(n) for a minimum of 3 months between the date of issue to
the policy anniversary in 1948. Accounts created by conversion, renewal,
change of permanent plan, or division, and the accounts from which they
were created, were considered together

.

5l5

M29-1. Part l April 11\
Change 1 •

in computing the number of months for which dividends were payable
within the dividend payment period. On the basis that the converted,
renewed, or changed contract, or the contract resulting from division
was in continuation of the original contract , both were eligible even
though only one or two months\' premiums were paid on either the
original or subsequent contract, provided a combined total of three or
more months\' premiums was paid within the dividend period. Where
unrelated policies of an insured were involved, the number of months
paid was not combined to arrive at an aggregate of 3 or more months to
determine the dividend eligibility of either contract.

d\. The dividend was paid on paid-up insurance, but not on extended
term, gratuitous, or on insurance for which premiums were credited to
the NSLI appropriation. Contract insurance under the NSLI fund, stemming
from gratuitous insurance, was eligible for dividends.

e\. The calculation of the dividend was based on the following factors:

\(l\) The number of months premiums were paid or waived because of
disability.

\(2\) The age of the policyholder on the date of issue of the policy.

\(3\) The face amount of the policy.

\(4\) Dividend rate.

5.28 1951 SPECIAL DIVIDEND (N AND V POLICIES ONLY)

a\. This dividend was based on premiums paid from the policy anniversary
date in 1948 (or effective date if policy was issued between l948 and
l950, both dates inclusive) to the policy anniversary date in 1951.
Payment was made under the cash option. An application for payment was
not required. A review of inactive accounts commenced soon after
December 14, 1950, to select eligible policies and to obtain current
mailing addresses. The preparation of authorization cards on active
accounts commenced in February 1951 by policy anniversary month, and
mailing of checks commenced approximately March 5, 1951. A sum of
approximately \$685 million was authorized for payment.

b\. To be eligible, premiums had to be paid and earned or waived because
of a disability for a minimum of 3 months during the dividend period. An
inservice waiver was considered in reaching the minimum of 3 months;
however, a dividend was not payable for the month or months the
inservice waiver was in force. Accounts created by conversion, renewal,
change of permanent plan, or division, and the accounts from which they
were created, were considered together in computing the number of months
from which dividends were payable within the dividend payment period.

c\. The calculation of the dividend was based on the following factors:

\(1\) The number of months premiums were paid or waived because of
disability.

\(2\) The age of the policyholder on the date of issue of the policy.

\(3\) The face amount of the policy.

\(4\) Dividend rate.

5.29 1961 SPECIAL DIVIDEND (V POLICIES ONLY)

a\. Participating policies were eligible for a special dividend if the
January, February, March or April l961 premium was timely paid or waived
due to) total disability. (Payment of premiums for one of the above
months as a month of lapse did or will not make the policy eligible.) •

5-16

May 20, 1977 M29-1, Part I

• Change 7

b\. A reduced paid-up or extended term insurance policy effective on or
before the due date of January 1961 was eligible provided the reduced
paid-up or extended insurance was in force on the January 1961 premium
due date of the parent policy.

c\. The dividend was based on the largest amount of insurance in force
during the eligibility period if the policy was reinstated, reduced,
lapsed or surrendered for reduced paid-up insurance during the
eligibility period.

d\. The dividend was based on the last type of insurance in force during
the eligibility period if a term policy was converted in the full amount
or a permanent plan policy was changed during the eligibility period.

e\. A limited payment life on which the premium-paying period had ended
was eligible provided it was in force under premium-paying conditions
during the premium month of January, February, March or April l961.

f\. The dividend was deemed payable on the day preceding the June 1961
premium due date and was payable under the option of record.

5.30 1961 SPECIAL DIVIDEND (RS AND W POLICIES)

a\. \[Originally RS prefixed policies were nonparticipating, however, as
of May 24,1974, Public Law 93-289 provided for policies prefixed by RS
and W to become participating policies as of January 1, 1975.\] RS
insurance became eligible for a special dividend if the RS or W
insurance was in force during one of the premium months of November or
December 1960 or January 1961 by timely payment of premiums, disability
waiver, or as paid-up or extended term insurance, provided one of the
following conditions were met:

\(1\) The policy had been converted or exchanged for W insurance, or
conversion or exchange for W insurance was applied for before September
14, 1963, or

• (2) If the RS insurance had not been converted or exchanged and the
policy matured by death on or after the November 1960 premium due date
and before September 14, 1963.

b\. The dividend, payable in cash without interest, was deemed payable
September 13, 1961, or when conditions were met. Dividends on policies
which had been converted or exchanged for W insurance were based on the
largest amount of insurance in force during the eligibility period.

c\. The dividend on policies becoming eligible after September 13, 1961,
and before September 14, 1963, was based on the amount of insurance
converted or exchanged for W insurance or the amount in force at death
but not greater than the largest amount of RS insurance in force during
one of the premium months of November or December 1960, or January
1961 - (Payment of premiums for November or December 1960, or January
1961 as the month of lapse did not make the policy eligible for the
special dividend if the policy was reinstated in the February 1961
premium month or later).

d\. The number of months payable for dividend purposes was based on the
number of months the insurance was in force, minus any months not paid
due to lapse, or waiver of premiums under a section 724 inservice waiver
from the effective date of the RS insurance to:

\(1\) The date of death, if death occurred within one of the premium
months of November or December 1960, or January 1961 on insurance not
converted or exchanged; or

\(2\) The date of conversion or exchange to W insurance; or

\(3\) The premium due date in February 1961, whichever is earlier.

e\. When recovery of indebtedness was made for an RS/W dividend, the
effective date of recovery was:

\(1\) September 13, 1961, when the contract change or conversion from
the parent RS policy was on or before that date.

5-17

M29-1, Part I May 20,1977\
change 7 •

\(2\) As of the date of the contract change date for exchange or
conversion from the parent RS policy provided the date was before
September 14, 1963.

5.31 1963 SPECIAL DIVIDEND (V POLICIES ONLY)

a\. Participating policies were eligible for a special dividend if the
August, September, October or November l962 premium was timely paid or
waived due to total disability. (Payment of premiums for one of the
above months as a month of lapse will not make the policy eligible for a
special dividend.) Premiums were considered timely paid if paid within
\[6l\] days of the premium due date under VA Regulation 3407.2, by
application of dividend credit, by application of Administrator\'s
Decision No. 902 (April 15, 1952) credits, or as the reinstatement
month.

\(1\) A policy which was surrendered for reduced paid-up insurance or
was in force under extended term insurance on or before August 1, 1962,
became eligible for the special dividend if the reduced paid-up or
extended term insurance was in force on the August l962 premium due date
of the parent policy.

\(2\) A fully paid-up policy became eligible for the special dividend if
it was in force during any one of the premium months of August,
September, October, or November l962.

b\. The dividend was based on the amount and plan of insurance last in
force during the eligibility period. If a larger amount of insurance was
in force during that period, the dividend was increased, based on the
additional amount of insurance and plan in force at that time.
*(EXAMPLE: Policy lapsed and was placed on extended term insurance in
reduced amount due to a policy indebtedness. The special dividend was
due on the reduced amount of extended term insurance at the extended
term insurance dividend rate. The difference between the face amount of
the permanent plan and the amount of extended term insurance at the
dividend rate for the permanent plan was also due.)*

c\. The dividend was payable on the date preceding the January 1963
premium due date and was available for the purpose of dividend options
as of that date.

d\. A full year\'s interest for 1963 was added to any dividend credit or
deposit balance existing on the day preceding the January l963 premium
due date, and the l963 regular and special dividends were credited after
the interest addition. There were no interest reversals as the result of
withdrawals occurring between the January 1963 premium due date and the
1963 anniversary date of the policy.

e\. The following codes were used in the insurance records in connection
with payment of the 1963 dividend:

Legend Transaction Code Explanation

SPP D 1 1963 Special Dividend\
Paid

SP NOT PD 2 l963 Special Dividend\
Not Paid

SPI NELIG 4 Ineligible for 1963\
Special Dividend

5-18

June 1, 1970 M29-l, Part l

•. SUBCHAPTER 5. SPECIAL AND TERMINATION DIVIDENDS ON USGLI

5.32 SPECIAL DIVIDENDS ON USGLI POLICIES

a\. *1949 Special Dividend.* A \$40 million dividend paid on permanent
plans only with effective dates of 1943 or prior. To be eligible, the
December 1948 premium had to be timely paid and earned.

b\. *1953 Special Dividend.* A \$70 million dividend paid on permanent
plans (including Whole Life 745) with effective dates of 1947 or prior.
To be eligible, the December l952 premium had to be timely paid and
earned or waived under section 31l disability. (Limited payment life
policies where all 20 or 30 years\' premiums had been paid were eligible
if the policy was in force on December 31,1952.) Policies, otherwise
eligible, that were on section 724 waiver for any number of months prior
to December 3l, 1952, received a reduced dividend proportional to the
number of months the policies were in force on a participating basis.

c\. *1958 Special Dividend. A* \$32 million dividend paid on permanent
plans and reduced paid-up policies. To be eligible, the December l957
premium had to be postmarked prior to April 1, 1958, or waived under
section 3ll; or the policy had to be a fully paid-up limited payment
life policy. On cash surrenders and reductions, a policy was not
eligible for the 1958 special dividend if a 1957 termination dividend
had been paid to the policyholder.

d\. *1961 Special Dividend.* A \$37 million dividend paid on both term
and permanent plans. The rules for eligibility were the same as those
for payment of the special dividend on NSLI with the following
exceptions:

\(l\) The dividends on USGLI were paid in cash.

\(2\) A USGLI policy eligible for a termination dividend was not
eligible for a 1961 special dividend.

• 5.33 TERMINATION DIVIDENDS (USGLI)

a\. Termination dividends are a release of a surplus in the contingency
reserve when a policy permanently severs it\'s connection with the
insurance fund. Eligibility for such dividend was limited to permanent
plan policies terminating under the following conditions:

\(1\) Termination by death, maturity as an endowment, or surrender for
cash or paid-up insurance between January 1,1953, and December 31,1961.

\(2\) Expiration of extended term insurance between January l, 1953, and
December 31, 1960, under the following conditions:

\(a\) Extended insurance without pure endowment lapsed prior to 1953
anniversary; terminated in 1958, 1959, or 1960.

\(b\) Extended insurance without pure endowment lapsed in 1953 (on or
after the anniversary date) or in the succeeding years, policy
terminated in 1958, 1959 or 1960.

\(c\) Extended insurance with pure endowment; terminated in 1958, 1959
or 1960.

\(3\) Expiration of extended insurance between January 1, 1961, and
December 31,1961, in all instances.

\(4\) Maturity by total permanent disability award made effective
between January 1, 1953, and December 31, 1961; however, the termination
dividend was to be paid only upon final termination of the policy. (The
USGLI termination dividend program ended December 31, 1961, and
dividends due on final termination of T and P accounts were paid in
1962.)

5-19

M29-1, Part 1 June 1,1970

b\. In a case where a l961 special dividend was paid and the policy
terminated under any of the conditions • outlined above, the l961
special dividend became an overpayment at time of settlement and was
recovered from the termination dividend.

c\. Where a termination dividend was paid on a policy surrendered for
its cash value under the provisions of section 623 of the NSLI Act of
1940 and reinstated under the provision of 38 U.S.C. 781, the dividend
with interest must be repaid. Repayment of the termination dividend is
not required in the replacement of insurance surrendered under the same
provision.

•

5-20