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

CONTENTS

CHAPTER 9. LIEN, LOAN, FINANCE, INTERNAL REVENUE SERVICE

AND SERVICE DEPARTMENT INDEBTEDNESS

PARAGRAPH PAGE\
9.01 Collection of Indebtedness 9-1\
9.02 Types of Indebtedness 9-1\
9.03 Establishment of Lien Indebtedness 9-2\
9.04 Establishment of Finance Indebtedness 9-4\
9.05 Establishment of Internal Revenue Indebtedness 9-4\
9.06 Establishment of Service Department Indebtedness 9.5\
9.07 Recovery of Policy Loan Indebtedness 9-5\
9.08 Recovery of Premium Lien Indebtedness 9-5\
9.09 Recovery of Insurance Overpayment Indebtedness 9-6\
9.10 Recovery of Sections 304 and 306 Lien Indebtedness 9-7**\
**9.11 Recovery of Finance Indebtedness 9-8\
9.12 Recovery of Service Department Indebtedness 9-9\
9.13 Recovery of Lien Indebtedness From Service Departments 9-9\
9.14 Interest on Lien Accounts 9-9

9.15 Re-establishment of Indebtedness Transferred to the Finance\
and Data Processing Division Collected From Reserve at Time\
of Lapse 9-9

9.16 Waiver of Certain Overpayments 9-10

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October 1,1973 M29-1, Part I

Change 5

CHAPTER 9. LIEN, LOAN, FINANCE, INTERNAL REVENUE SERVICE AND SERVICE
DEPARTMENT INDEBTEDNESS

9.01 COLLECTION OF INDEBTEDNESS

a\. It is the policy of the VA that prompt and aggressive demands be
made upon the veteran for payment of indebtedness due the VA and to
pursue such collection efforts vigorously.

b\. A premium, insurance overpayment, or policy loan indebtedness which
is secured by an NSLI or USGLI contract may not be waived as to money
that becomes due on account of such contract. The indebtedness, if not
otherwise paid, will be recouped by offset as outlined in the rules for
recovery of the type of indebtedness involved.

c\. When an insurance indebtedness is not secured by an NSLI or USGLI
contract and remains unpaid, it will be transferred to the Chief,
Finance and Data Processing Division.

9.02 TYPES OF INDEBTEDNESS

a\. There are several types of indebtedness of which record must be
maintained in connection with NSLI and USGLI. These types of
indebtedness are defined as follows:

\(1\) *Policy Loan Indebtedness* includes policy loans and accrued loan
interest.

\(2\) *Premium Lien Indebtedness* includes administrative liens for
unpaid premiums or shortages. It does not include premium shortages of
less than 10 percent of a monthly premium or an accumulation of such
shortages up to 30 percent of a monthly premium. These shortages are
generally paid by direct remittances, but are eligible for setoff under
the same rules governing recovery of premium liens if they remain
unpaid.

\(3\) *Insurance Overpayment Indebtedness* includes administrative liens
from erroneous payment or overpayment of any insurance benefit payments,
such as dividends, loans, cash surrenders, refunds, etc. \[The following
rules apply to erroneous payment or overpayment of dividends:

\(a\) No receivable or lien will be established if at the time of the
audit the date of discovery is 6 years or more after the date of
payment.

\(b\) If the insurance is in force, no determination will be made as to
whether the 1948 and/or 1951 dividend has been paid or if the amount
paid was correctly

\(4\) *Section 304 Liens* include those liens established for unpaid
yearly renewable USGLI term insurance premiums where the insured
reinstated under section 304 of the World War Veterans\' Act within l
year after July 2, 1926, and submitted evidence that he was unable to
pay such premiums with interest. These liens may not be currently
established.

\(5\) *Section 305 Liens* may be currently established. To be eligible,
the insured must have been entitled to uncollected disability
compensation at the time his USGLI policy lapsed and must have since
died or become totally and permanently disabled. The uncollected
compensation is not used to pay premiums but is applied as a factor in
determining how much insurance is purchased if that amount were applied
as premiums from the date of lapse to the date of death or disability.
The insurance is payable after the premiums, with 5 percent interest
compounded annually through the date of the claim, have been deducted.
The amount of premiums and interest thus deducted constitutes a section
305 lien.

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M29-1, Part I October 1,1973

Change 5

\(6\) *Section 306 Liens* may be currently established and include liens
established to provide for the deferment of premiums for USGLI
policyholders who are:

\(a\) Confined in a hospital as a patient of the VA for a compensable
disability, or

\(b\) Rated temporarily totally disabled for a compensable disability,
or

\(c\) Mentally incompetent with no guardian appointed and who allowed
their insurance to lapse while mentally incompetent.

*(7) Finance Indebtedness* includes overpayments and illegal payments
not in connection with insurance which were made to a veteran or his
dependents under laws administered by the VA.

\(8\) *Internal Revenue Service Indebtedness* includes Notices of Levy
for delinquent Federal income taxes.

\(9\) *Service Department Indebtedness* includes charges against the
insurance for amounts paid to the VA by a service department which were
not supported by deductions from service pay.

b\. The loan/lien segment of the insurance master record provides for
the maintenance of policy loan indebtedness and two premium and/or
overpayment liens. A one-digit code in the *\"type lien\"* block in the
lien segment indicates the type of lien. These designations are as
follows:

\(1\) I-premium lien.

\(2\) J-premium lien, more than 1 year interest free period.

\(3\) 2-overpayment lien.

\(4\) K-overpayment lien, more than 1 year interest free period.

c\. Where there are more than two premium and/or overpayment liens,
those in excess of two are maintained off tape on VA Form 29-1696, Lien
Record Card. Sections 304 and 306 liens, finance, Internal Revenue
Service, and service department indebtednesses are maintained off tape.
An *\"X\"* in the *\"other indebtedness\"* block in the life segment of
the record printout will indicate the existence of one or more off tape
indebtednesses.

9.03 ESTABLISHMENT OF LIEN INDEBTEDNESS

a\. Administrative liens for premium indebtedness will be established
when one or more of the following conditions is disclosed:

\(1\) Individual premium shortage in excess of 10 percent of a monthly
premium or an accumulated premium shortage in excess of 30 percent of a
monthly premium which was caused by release of incorrect premium
information.

\(2\) A premium receipt was released in error.

\(3\) The current premium is timely paid but a previous one was unpaid
because the VA gave the insured incorrect information.

\(4\) An uncollectible remittance results in premiums not being paid
through the premium month in which a loan was granted.

\(5\) The initial deduction for insurance premiums is greatly in excess
of the amount of monthly benefit payments available.

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October 1, 1973 M29-1,Part I

Change 5

\(6\) Premium credits were refunded which should have been used to
prevent lapse under Administrator\'s Decision 902.

\(7\) An insured is rated totally disabled during the grace period of an
unpaid premium and a waiver of premiums is established as of the first
premium due date following the date total disability commenced.

\(8\) An application for a section 724 waiver on a term policy was made
during the grace period of the first unpaid premium preceding the
effective date of the waiver.

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

\(9\) An allotment which does not cover the premium for the month of
lapse is used to reinstate a term policy.

\(10\) An allotment is not adjusted to cover premiums on renewed term
policies or other contract changes.

\(11\) A deficient allotment is not adjusted while the insured is in
service to cover increased premiums resulting from the acceptance of an
older age.

\(12\) An allotment was not adjusted by the Army Finance Center on
schedule A, B, or under Public Law 490, 77th Congress, to pay missing
premiums.

\(13\) An allotment is inactive and there are premium shortages which
resulted from the allotment.

\(14\) A TDIP at age 60 rider is exchanged for a TDIP at age 65 rider
and a shortage in TDIP premium from the date of exchange to the next
month due resulted.

\(15\) Under the VSDI program, liens were established on certain JR and
JS policies for shortages which arose when an application for insurance
could not be accepted at standard rates but was acceptable as rated
insurance. Liens were established when the:

\(a\) Applicant sent in the correct premium and advised that he or she
wanted the insurance, but was unable to pay the shortage immediately, or

\(b\) Insured advised that he or she was unable to pay the increased
premium, but wanted to continue the insurance in force in a reduced
amount and/or lower price plan and sent a premium on the amount and plan
desired.

\(16\) When a ruling favorable to the insured is handed down by the
Board of Veterans Appeals in an appellate case, the insured will be
advised of any monetary adjustment required to pay for the insurance
coverage established. Failure to pay the amount required will result in
the creation of an interest-bearing lien.

b\. Administrative liens for insurance overpayment indebtedness will be
established whenever any of the following conditions are disclosed:

\(1\) Dividend credits were refunded when they should have been used to
prevent lapse.

\(2\) An overpayment is made in connection with insurance benefit
payments, such as dividends, loans, cash surrenders, refunds, etc.

\(3\) A policy is canceled because of fraud and insurance benefit
payments were made on or after the date on which the fraudulent action
occurred.

c\. Section 306 liens will be established to provide for the deferment
of premiums for certain USGLI policyholders under the following
conditions:

\(I\) The veteran is confined in a hospital as a patient of the VA for a
compensable disability or has been rated temporarily totally disabled by
reason of injury or disease which entitles him or her to compensation.
The veteran must make application during his or her lifetime. The period
of deferment shall begin with the month of confinement in a hospital or
the month in which the rating of temporary total disability is made,
except the period of deferment shall not include any month before the
month in which application is made. The period of deferment shall end
with the last day of the month during the half or major fraction of
which the policyholder was confined in the hospital or was rated
temporarily totally disabled.

\(2\) The veteran who is mentally incompetent and has no legal guardian
and whose insurance lapsed while the insured was mentally incompetent.
Application for deferment of premiums is not required and such deferment
may be retroactive to cover premiums for the period of incompetency. The
period of coverage shall be from the

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M29-1, Part I May 20, 1977

Change 7

due date of the month in which the insured became mentally incompetent
and shall end with the last day of the last month during the half or
major fraction of which the insured continues to be go rated and until
the guardian has notified the VA of his or her qualification, but not
later than 6 months after appointment as guardian.

\(3\) Section 306 liens bear interest at 5 percent per annum, compounded
annually, from the due date of each premium.

\(4\) Insurance will lapse after termination of the deferment of
premiums if premiums are not paid on the due date or within the 31-day
period. Upon reinstating insurance, the section 306 lien may be
reinstated even though the indebtedness exceeds the reserve of the
policy.

9.04 ESTABLISHMENT OF FINANCE INDEBTEDNESS

a\. Finance indebtedness will be indicated on the master record of a
participating insurance account as *Other Indebtedness* when such
indebtedness is reported by a regional office provided:

\(1\) The account is active, or

\(2\) The account is inactive and there are refunds or dividends due.

b\. When these conditions are not met, the notice of the finance
indebtedness is returned to the regional office as uncollectible.

9.05 ESTABLISHMENT OF INTERNAL REVENUE INDEBTEDNESS

a\. Tax levies against the proceeds of government Life Insurance
policies by Internal Revenue Service are subject to setoff from the
sources listed below. However, such levies will not take precedence over
insurance indebtedness or other debts subject to setoff under veterans
laws. (General Counsel\'s Opinion, VA-OP 27-57 and 26 U.S.C. 6332.)

\(1\) Dividends: All dividends payable in cash, dividends on deposit
while on deposit, or withdrawal of dividend credits, except automatic
withdrawal to prevent lapse. Dividends which have been used to pay
premiums in advance are not subject to tax levy unless they become
refundable to the insured or the beneficiary, but only for indebtedness
of the person to whom such benefit is payable. (Dividends are not
subject to levy if the dividend option is paid-up additions.\]

\(2\) Premiums: Premiums refunded because of disability (total or total
permanent), refund of unearned premiums, suspense credits, or PIR (pure
insurance risk) portion of permanent plan premiums.

\(3\) Loans: Even though the insured has not applied for a loan, the
loan value (of the basic policy and the paid-up additions, if any, are\]
subject to levy.

\(4\) Cash Surrender: If the insured has made written application.

\(5\) Disability Payments: Total disability provision payments, and/or
total permanent disability payments.

\(6\) Matured Endowments: Payment of proceeds of a matured policy,
either lump-sum or monthly

installments, are subject to levy, but only for indebtedness of the
person to whom such proceeds are payable.

\(7\) Unpaid Dividends, Unearned Premiums, and the proceeds of a policy
matured by death are subject to levy if the indebtedness to the
Government is against the beneficiary.

b\. Internal Revenue Service levies will be honored if monies from one
or more of the sources referred to above are available or will become
available within 1 month from the date the notice of levy is served.

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May 20,1977 M29-1, Part I\
change 7\
c. A record of all levies processed will be maintained for statistical
purposes.\
9.06 ESTABLISHMENT OF SERVICE DEPARTMENT INDEBTEDNESS

a\. If a service department requests the VA\'s help in recovering
allotment payments which were not supported by deductions from the
insured\'s service pay, the request will be honored provided the
indebtedness is \$5 or more and the insurance is in force. When the
amount is less than \$5 or the insurance is inactive, the request will
be returned to the service department with an explanation. If a charge
is placed against an insured\'s account, (the insured\] will be advised.

b\. A service department indebtedness is non-interest-bearing. It is
maintained off-tape, and is designated as *Other Indebtedness* on the
master record.

9.07 RECOVERY OF POLICY LOAN INDEBTEDNESS

a\. Recovery of policy loan indebtedness from the contract on which the
indebtedness exists may be *effected during the insured\'s lifetime*
without (the insured\'s\] consent from amounts involved in the following
transactions:

\(l\) Subsequent policy loan.

\(2\) Cash surrender.

\(3\) Application of reserve to purchase paid-up or extended term
insurance.

\(4\) Change of plan (to the extent that the amount of loan outstanding
exceeds the loan value of the new policy).

\(5\) Reduction.

\(6\) Proceeds of matured endowment.

b\. In *death cases,* policy loan indebtedness will be collected without
the consent of the beneficiary or ( \] guardian from the payment of
death insurance benefits from the contract on which the indebtedness
exists.

9.08 RECOVERY OF PREMIUM LIEN INDEBTEDNESS

a\. Recovery of premium indebtedness from the contract on which the
indebtedness exists will be *effected during the insured\'s lifetime*
without (the insured\'s\] consent, unless otherwise noted, from amounts
involved in the transactions shown below. (Reduction, renewal,
conversion, change of plan, division, consolidation and reinstatement
are considered as continuation of the particular contract.)

\(1\) Policy loan.

\(2\) Cash surrender.

\(3\) Application of reserve to purchase paid-up or extended term
insurance.

\(4\) Change of plan from a higher to a lower reserve value except when
the old policy has been in force less than 12 months.

\(5\) Reduction.

*(6)* Payment of proceeds as a matured endowment.

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M29-1,Part I May 20, 1977

Change 7

\(7\) Total disability income provision benefits.

\(8\) Disposition of dividends, except dividends retained as a credit at
interest and applied to pay premiums under the provisions of 38 U.S.C.
707 and 746.

NOTE: If the insured requests that dividend credits be paid in cash,
applied to pay premiums in advance, or placed on deposit under the
provisions of the policy, \[the insured\] will be advised that if the
request is honored, the premium indebtedness will be collected from the
amount due. The insured will be afforded an opportunity to withdraw the
request within 15 days from the date of notice.

\(9\) Refund of premiums paid for a period during which a total
disability waiver is or was in effect.

\(10\) Refund of PIR credits provided the premium indebtedness consists
of shortages which arose during the refund period.

\(11\) Refund of suspense items, other than to a third party remitter \[
\] -

\(12\) Refund of unearned premiums.

b\. Recovery of premium indebtedness from the contract on which the
indebtedness exists will be effected in *death cases* without the
consent of the beneficiary or ( \] guardian from amounts involved in the
fo1lowing transactions:

\(1\) Payment of death insurance benefits.

\(2\) Payment of dividends.

\(3\) Refund to the estate of the deceased veteran on any insurance
contract which is not in force at date of death.

c\. Under no circumstances involving permanent plans of insurance, when
the reserve is sufficient to satisfy the indebtedness, \[will\] money
tendered after the date of lapse be used to liquidate premium
indebtedness, even though the insured may grant permission to do so.
However, when the reserve is insufficient to liquidate the indebtedness,
amounts intended as premium payments tendered after lapse may be
\[used\] to satisfy that portion of the indebtedness remaining after the
reserve has been used in partial liquidation of the total indebtedness
with specific written consent of the insured.

9.09 RECOVERY OF INSURANCE OVERPAYMENT INDEBTEDNESS

a\. Recovery of insurance overpayment indebtedness will be *effected
during the insured\'s lifetime* without his or her consent, unless
otherwise noted, from amounts involved in the following transactions:

\(1\) Policy loan on any of the insured\'s contracts or cash surrender
of any of the insured\'s contracts.

NOTE: If the insured applies for a loan or cash surrender of a contract
other than the one on which the indebtedness exists, the amount of the
indebtedness will be deducted from the loan or cash surrender value and
the payment authorized. The insured will be advised of the action taken
and \[ \] will be told if he or she objects to the action taken and
returns the check representing the loan or cash surrender value of the
policy (less the indebtedness), the entire transaction will be canceled
and the policy restored to the same condition it was in before the
action was taken.

\(2\) Application of reserve to purchase reduced paid-up insurance or
extended term insurance on the contract on which the indebtedness exists
unless the indebtedness resulted from the accelerated payment of
dividends.

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

\(a\) If the indebtedness was incurred on or before the date of lapse,
the indebtedness will be collected by recomputing the net cash value and
reducing the amount and period of extended term insurance provided the
net cash value will purchase extended term insurance through the premium
month in which the recomputation is made. When the total indebtedness
cannot be collected in this manner, part of it will be collected by
recomputing the net cash value and using as much of the net cash value
as is necessary to purchase insurance equal to the face amount less the
total indebtedness as of the date of lapse through the premium month
during which recomputation is made and applying the balance of the cash
value as a partial payment on the indebtedness.

\(b\) If the date the indebtedness was incurred is after the date of
lapse, the indebtedness, if not otherwise liquidated, will be collected
only upon settlement of the insurance.

\(3\) Cash payment of the difference in reserve resulting from a change
of plan to a lower reserve of any of the insured\'s contracts.

NOTE: If the difference in reserve is not paid in cash and the old
policy has been in force 12 or more months, the indebtedness will be
collected only if it exists on the contract involved in the change of
plan. If the policy being changed has been in force less than 12 months,
the difference in reserve may be used only to pay premiums.

\(4\) Cash payment of the reserve resulting from the reduction of any of
the insured\'s contracts. If the reserve is not paid in cash, the
indebtedness will be collected only if it exists on the contract
involved in the reduction.

\(5\) Payment of the proceeds of any matured endowment contract of the
insured.

\(6\) Total disability income provision benefits on any of the
insured\'s contracts.

\(7\) Disposition of dividends on any of the insured\'s contracts in
accordance with the rules included in paragraph 9.08a(8).

\(8\) Refund of premiums paid for a period during which a total
disability waiver is in effect on any of the insured\'s contracts.

\(9\) Refund of pure insurance risk credits on the contract on which the
indebtedness exists, provided the indebtedness represents a dividend
erroneously paid during the period the PIR credits were earned.

\(10\) Refund of suspense items, other than to a third-party remitter,
on any of the insured\'s contracts \[ \].

\(11\) Refund of unearned premiums on any of the insured\'s contracts.

\(12\) VA benefit payments to the insured.

b\. Recovery of insurance overpayment indebtedness will be *effected in
death cases* without consent of the beneficiary or guardian from amounts
involved in the following transactions:

\(I\) Payment of dividends or death insurance benefits to the
beneficiary on the contract on which the indebtedness exists.

\(2\) Payment of dividends or death insurance benefits to the insured\'s
estate on any of the insured\'s contracts.

\(3\) Refunds to the estate of the deceased veteran on any insurance
contract not in force at the date of death.

9.10 RECOVERY OF SECTIONS 304 and 306 LIEN INDEBTEDNESS

a\. The law provides that section 304 lien indebtedness be deducted from
the proceeds of insurance in any settlement. Regular dividends are
applied to offset these liens on permanent plans only if such
indebtedness is in excess of the reserve of the policy. However, if the
reserve exceeds such indebtedness, the dividend is paid under

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M29-1, Part I May 20, 1977

Change 7

the option of record. 1f the insured gives his or her permission to
apply dividends to the indebtedness, regular dividends may be used as
offset on term and permanent plan policies. 1f the insurance is reduced,
only the lien and interest on the reduced amount of insurance will be
continued.

b\. Section 306 liens may be deducted from the proceeds of insurance in
any settlement thereunder; or from the cash value, if taken in cash or
used to purchase reduced paid-up or extended insurance, or in making a
loan. When section 306 indebtedness equals or exceeds the cash value,
the policy will not be automatically surrendered as long as current
premiums are paid or waived. If the lien is in excess of the cash value
at the time of termination of the policy for any reason other than death
or total and permanent disability, there shall be transferred from the
Military and Naval Insurance Appropriation to the USGLI fund, a sum
equal to the amount such indebtedness exceeds the cash surrender value.

9.11 RECOVERY OF FINANCE INDEBTEDNESS

a\. Recovery of finance indebtedness will be effected during the
insured\'s lifetime, without his or her consent, unless otherwise noted,
from amounts involved in the following transactions:

\(1\) The portion of a policy loan on any of the insured\'s contracts
which is paid in cash or cash surrender of any of the insured\'s
contracts.

NOTE: When an application for a loan or cash surrender of a contract
other than the one on which the indebtedness exists is processed, the
indebtedness will be deducted from the amount of the loan or the cash
surrender value and the payment authorized. The insured will be advised
of the action taken and \[ \] will be told if he or she objects to the
action taken and returns the check representing the loan or cash
surrender value of the policy (less the indebtedness, \[ \] the entire
transaction will be canceled and the policy restored to the same status
it was in before the action was taken.

\(2\) Cash payment of the difference in reserve resulting from a change
of plan from a higher to a lower reserve value of any of the insured\'s
contracts.

\(3\) Cash payment of the reserve resulting from the reduction of any of
the insured\'s contracts.

\(4\) Payment of the proceeds of any matured endowment contract of the
insured.

\(5\) Disposition of dividends on any of the insured\'s contracts in
accordance with the rules included in paragraph 9.08a(8).

\(6\) Refund of premiums paid for a period during which total disability
waiver is in effect on any of the insured\'s contracts.

\(7\) Total disability or total and permanent disability benefits on any
of the insured\'s contracts.

\(8\) Refund of suspense items, other than to a third-party remitter \[
\]

\(9\) Refund of unearned premiums on any of the insured\'s contracts.

b\. Recovery of finance indebtedness *will be effected in death cases*
without the consent of the beneficiary or

\] guardian from amounts involved in the following transactions:

\(l\) Payment of dividends or death insurance benefits to the insured\'s
estate on any of the insured\'s contracts.

\(2\) Refunds to the estate of a deceased veteran on any of his or her
insurance contracts not in force on the date of death.

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

9.12 RECOVERY OF SERVICE DEPARTMENT INDEBTEDNESS

The rules for recovery of service department liens are the same as those
for recovery of premium liens.

9.13 RECOVERY OF LIEN INDEBTEDNESS FROM SERVICE DEPARTMENTS

a\. Service departments will reimburse the VA, upon request, for any
overpayment of insurance benefits brought about by delayed submission of
allotment discontinuance or inactive allotment adjustments.

b\. The reimbursement will be made in the amount of overpayment or of
the premiums, whichever is the lesser amount, that would have been
payable to the premium month in which the VA\'s disbursement action was
taken.

9.14 INTEREST ON LIEN ACCOUNTS

a\. Non-interest-bearing liens. Interest will not be charged on:

\(l\) Liens repaid within l year from the date of initial notification.

\(2\) Liens established when premium deduction from VA benefits has been
authorized but not deducted (VA Regulation 3410).

\(3\) Liens established for renewal of term policies when an allotment
or deduction is late or on a current basis.

\(4\) Liens which are repaid or collected for service departments.

\(5\) Liens which are established on allotments from active service or
retired pay.\]

b\. Rate of interest charged on liens. The rate of interest on sections
304, 305 and 306 liens is 5 percent. The current rate on other
interest-bearing liens is 4 percent, and the date of notification to the
insured will be used as the lien effective date for interest purposes.
(From July 19, 1939, to August 1, 1946, the interest rate was 5 percent.
Prior to July 19, 1939, the interest rate on USGLI liens was 6 percent.)

c\. Interest will be computed in the same manner as prescribed for loan
interest in \[chapter 8,\] paragraphs 8.09 and 8.10.

d\. Premium liens on inactive accounts will be considered uncollectible
if satisfactory arrangements for repayment are not made within 4 months
from the lien effective date. Insurance overpayment liens on inactive
accounts will be considered uncollectible 6 months after the lien
effective date if there are no insurance or VA benefits due or becoming
due on any of the insured\'s accounts and/or no satisfactory
arrangements have been made to repay the indebtedness.

9.15 RE-ESTABLISHMENT OF INDEBTEDNESS TRANSFERRED TO THE FINANCE \[ \]
DIVISION COLLECTED FROM RESERVE AT TIME OF LAPSE

a\. When any plan of insurance is reinstated, an indebtedness previously
considered uncollectible or previously collected from the reserve at
time of lapse must either be repaid or reestablished at the time of
reinstatement.

b\. When a reduced amount of a 5-year level premium term policy is
reinstated, the full amount of the original indebtedness with interest
to the date of reinstatement must be repaid or reestablished on the
amount of insurance reinstated.

c\. When a permanent plan policy is reduced or divided at the time of
reinstatement, only the applicable portion of the indebtedness with
interest to the date of reinstatement must be repaid or reestablished on
the amount of insurance reinstated.

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M29-1, Part I May 20, 1977

change 7

NOTE: When only a portion of a permanent plan policy is reinstated, the
following action will be taken if, at the time of lapse, the lien
exceeded the reserve of the policy: The reserve at the time of lapse on
that portion of the policy which is not reinstated will be deducted from
the original lien plus interest to the date of lapse. The remainder will
be established as a lien on that portion of the insurance which is
reinstated.

9.16 WAIVER OF CERTAIN OVERPAYMENTS

a\. An overpayment to an insured from an insurance contract which is not
secured by a United States Government Life Insurance or National Service
Life Insurance contract, either in force or subject to being placed in
force, may be waived. (VA Regulation 5207(B))

b\. When an insurance overpayment is subject to waiver, the veteran must
be advised of his or her rights.

9-10