Ex-Exec Life Policyholders Face Choice : Insurance: Mailing offers chance to be with successor firm or a reduced payment for dropping out now.

Just in time for the Christmas rush, 350,000 fat “election packages” started being mailed Tuesday to policyholders of the failed Executive Life Insurance Co., giving them up to 45 days to decide whether to stay with the company’s successor or “opt out” of the rehabilitation plan.

Insurance Commissioner John Garamendi dropped the first packet into the mail Tuesday afternoon in a ceremony that marked the beginning of the end of his role as rehabilitator of the company he seized as insolvent in April, 1991.

Under a court-approved rehabilitation plan, policyholders must choose whether to stick with Executive Life’s successor, Aurora National Life Assurance Co., or to accept a smaller--but immediate--cash payment plus an IOU for a share of the money from Executive Life’s real estate, future legal settlements and other assets.

The decision deadline is Feb. 12.

The packages--mailed out at a cost of $1,023,000 in postage--each contain a 100-page booklet describing the rehabilitation plan and the policyholder’s options.

Also enclosed is an individualized statement giving the value of each policyholder’s account and the estimated amount of money to be received depending on whether the policyholder opts in or opts out.

For most life insurance policyholders, it will be the first official notice of their policy values since Executive Life was seized. Holders of Executive Life annuities were notified in October.

“I think a lot of people are going to be shocked,” said Maureen Marr, who headed a lobbying and informational group of Executive Life policyholders that was dissolved as part of the settlement process.

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Aurora and Garamendi say that 92% of all policyholders will receive their full investment back if they opt to participate in the rehabilitation plan. The remainder who will not be made whole--mainly those whose policy values exceed state guarantee limits of $100,000--will receive an average of 86% after the first $100,000. But in some cases the recovery may be far lower.

Marr said that many life insurance policyholders will be surprised to discover that they may be charged additional fees under the rehabilitation plan or that their annual premiums may rise sharply.

Aurora officials acknowledge that the informational packages may leave many questions unanswered. Therefore, the company has established a toll-free telephone number for questions and has bolstered its policyholder communications staff by an additional 700 employees during the election period.

Alan C. Snyder, chief executive officer of Aurora, said the company hopes to retain as many customers as possible.

To do so, Aurora has preserved the distinctive features and tax advantages of the original policies and is offering competitive interest rates, he said.