Universal
Life
| Universal
Life - Basic |
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Characteristics
Flexible premium, current assumption, adjustable death benefit plan of insurance
Market
Middle and upper income individuals looking for premium and death benefit flexibility
Death
Benefit
Adjustable- Option A (level), Option B (base policy face amount plus cash value)
Benefit Premium
Flexible at option of policyowner
Cash
Value
Varies depending on face amount and premium; minimum guaranteed interest rate; excess increases cash value
Advantages
To Buyer
Flexible premium payments and protection levels; cash values build on a tax favored basis
Disadvantages
To Buyer
Flexibility places greater responsibility on buyer; buyer assumes greater investment, expense and mortality risk; policy lapses if premium is not sufficient; adverse change in interest expense and/or mortality assumptions can affect satisfaction of long term goals and policy values could drop below that of ordinary whole life
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In-Depth Description - Universal Life
Universal Life has several unique features not found in whole life policies. Specifically, the policyowner is provided with the flexibility to vary the timing and amount of premiums and the face amount, depending upon present needs.
Cash values are a function of past and present premium payments, interest crediting rates, mortality charges and expense charges. The interest rate credited to the policy cash value is based on current rates of interest, subject to a stated guaranteed minimum interest rate. In addition, current mortality and expense charges are deducted from the accumulation value, but the only guarantee is that these charges will not exceed certain maximums. As a result, the policyowner bears more of the risk of adverse trends in mortality and expenses than if a traditional whole life insurance policy were purchased. On the other hand, if the insurance company's mortality costs and expenses improve, the policyowner may benefit through lower charges.
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