Lou Holtz says, "Ladies and gentlemen, you are not selling life insurance. All you're trying to do is help people solve problems before they arise."


Universal Life Policies



Universal life goes by the generic name of 'flexible premium adjustable life". The first universal life policy was introduced in the late 1970's. Also, like adjustable life, the death benefit (face amount) can be increased or decreased depending on the insurance needs of the policyowner. One way in which universal life differs from adjustable life is the policyowner has the flexibility to increase the amount of premium going into the policy and to later decrease it again. In fact, the policyowner may even skip applying a premium and the policy will not lapse as long as there is sufficent cash value at the time ot cover the monthly deductions for cost of insurance.


Becuase Universal life policies allow the policyowners to adjust the premium, the insurance companies may give the policyowner a choice to pay either the minimum premium or the target premium. The minimum premium is the amount needed to keep the policy in force for the current year (only enough to purchase insurance and cover expense). Paying the minimum premium will make the policy perform as an annually renewable term product. The target premium is a recommended amount that should be paid on a policy in order to cover the cost of insurance protection and to keep the policy in force throughout its lifetime. In this case, the policyowner may agree to a monthly preauthorized bank draft. The amount of the payment is established according to how much the policyowner wants to save each month.




As well as being flexible premium policy, universal life is also an interest-sensitive policy. The insurer credits the cash value in the policy with a current (nonguaranteed) interest rate and backs the cash value with a contract (lower guaranteed) rate of interest. The guaranteed interest rate on most universal life policies varies from 2.5% to 5.5% depending on the insurer, and is the minimum interest rate the insurer will pay. The current rate is usually based on current market conditions and this is the amount that will be credited to the policy if it exceeds the contract rate. Some inusrers tie their current interest rates to Treasury Bills, while others maintain a specified (profit margin) between the interest that they credit on their in-force policies and the interest that they are earning on their own investment portfolio. Some insurers have their current interest rate declared by the company's board of directors each year, if not more frequently.

A Univeral policy has two components: an insurance component and a cash account. The insurance component of a universal life policy is always annual renewable term insurance. The cash account accumulates on a tax deferred basis each year and earns either the gurarnteed contract rate or the current rate, whichever is higher.

When the policyowner pays the premuim for a universal life policy, a small part of it is deducted for the premium expense charge, and the balance is allocated into the policy's cash value account. Certain expenses are then deducted from the cash account. These expenses (loads) include mortality costs (the cost of the insurance or death benefit), sales expense incurred in marketing and distributing the policy, and expenses involved in issuing the policy.

At the time that an individual applies for a universal life policy, he or she selects the level of premium, cash value, death benefit and premium-paying period that is desired. If the polcyowner wishes to acumulate a certain amount of cash value by a certain period of time, say 20 years, the cash value can be targeted to accumulate to that amount by the 20th yr and the amount of premium required to accomplish that objective will be calculated. If no cash value is ever factored into the premium, or , in other words, zero cash value is targeted for age 100, the policy will look and function just like an annual renewable term policy. When the policyowner selects these aspects of coverage, he or she also selects the death benefit option that is desired. Universal Life offers two options of death benefits. Level and Increasing Death Benefits

Option 1. Level Death Benefit option, the death benefit remains level while the cash value gradually increases. The reason that the illustration shows an increase in the death benefit at a later point in time is so that the policy will comply with the "statutory definition of life insurance" that was esttablished by the IRS and applies to all life insurance contracts issued as of December 31, 1984. According to the definition, there must be a specified "corridor" or gap maintained between the cash value and the death benefit in a life insurance policy. The percentages that apply to the corridor are established in a table published by the IRS and vary as to the age of the insured and the amount of coverage. If this corridor is not maintained, the policy is no longer defined as life insurance for tax purposes and consequently loses most of the tax adantages that have been associated with life insurance.

Option 2. Increasing Death Benefit, the death benefit includes the annual increase in cash value so that the death benefit gradually increases each year by the amount that the cash value increases. At any point in time, the total death benefit will always be equal to the face amount of the policy plus the current amount of cash value. Of course there is an extra premium charged for this option on the policy.


Universal Life Option A (Level Death Benefit option) policy must maintain a specified "corridor" or gap between the cash value and the death benefit, as required by the IRS. If this corridor is not maintained, the policy is no longer defined as life insurance for tax purposes, and consequently loses most of the tax advantages that have been associated with life insurance.

For more information call 877-231-5283 Ext 3