A Universal Life (UL) policy is a permanent life insurance policy. For the current series of UL’s there is a 5% expense charged that is deducted out of your premium payment. That amount is added to the policy’s account value. Every month the Cost of Insurance (COI) for the benefits and expense charges are deducted from the account value of the policy. A benefit to having account value is that the account value earns interest and that is credited monthly. The interest rate does change however, it is guaranteed to be at least 4% per year.
UL policies have adjustable premiums. The amount of insurance can be increased, however, you may have to go through medical underwriting to prove that you are insurable for the amount of the increase.
A policy loan can also be taken out on UL policies. However, it will reduce the death benefit if not repaid at the time of your death. The loan will accumulate interest, and you will be billed yearly on the policy anniversary date. You do not have to repay any loans taken out on your UL policy. However, if you do not at least pay the loan interest every year, then that interest will be added onto the end of your loan & taken from your account value. This is called loan interest capitalization. If this is done for several years, it puts the policy in jeopardy of terminating itself because there has to be more account value in the policy than there is in loan.
An alternative to a policy loan is a withdrawal . Withdrawals may be made from the cash surrender value (the value you would receive if you were to terminate the policy) Each withdrawal must be a minimum of $500.00. However, only four withdrawals are allowed per year. Any funds withdrawn will decrease the account value and the death benefit. A benefit of the withdraw is that you do not have to repay it and it doesn’t accrue interest.
There may be a surrender charge at the time of the withdrawal or loan. Usually, if you make a loan or a withdrawal within the first 15 years of the policy, a surrender charge will apply.
UL policies are available at minimum issue amounts of:
$50,000 for ages between 0 & 54
$25,000 for ages between 55 & 80
$100,000 for preferred rates (based on your health if you qualify)
$250,000 for super preferred rates (based on your health if you qualify)
There are two benefit options you can choose from:
Is a level death benefit equal to the base amount of insurance coverage you chose. Your death benefit is just the base amount.
Provides a death benefit that varies with your policy account value. Your death benefit is the base amount plus account value.
Family Coverage: this is a term life insurance for your spouse and children. Also known as the level term rider.
Disability Waiver of Monthly Deductions (WMD): the cost of insurance & the monthly expense charge can be waived during disability before the age of 60, and the disability lasting 6 months or longer.
Guaranteed Insurability Option (GIO): you are guaranteed to increase you life insurance coverages by the amount of the rider with evidence of insurability. You must also have WMD to have the GIO.