3.7 Nontraditional Life Policies
Interest Sensitive Whole Life (Current Assumption Whole Life) - Premiums vary to reflect the insurer's changing assumptions with regard to death investment and expense factors.
Adjustable Life (Permanent + Term) - Combines permanent and term life policies allowing changes to face amount, period payments, and term during policy lifetime.
Universal Life (UL) - UL policies are characterized by considerable flexibility. Whereas whole life policies contain fixed premiums, fixed face amounts and fixed cash value accumulations, UL policies allow premium payments and face amounts to be adjusted up or down according to the policyowner's needs.
How does the universal life product work?
Premium payments accumulate depending on the insurer's investment experience and the amount of withdrawal required to fund the face value of the policy. The accumulations in the policy grow on a tax-sheltered basis as in other life insurance policies. A specific percentage of all premiums must be used to purchase death benefits or the product will not receive favorable tax treatment on its cash value.
Universal life insurance utilizes a fund into which premiums are paid regularly or intermittently. Annually (or more frequently), the insurance company withdraws an amount sufficient to pay the premium for annual renewable term coverage for the amount selected by the policyowner for the current period. The unused funds in the account are credited with interest and debited with expenses.
Universal life policies include additional death benefit guarantees offered by many insurers to insureds who agree to pay a specified fixed premium. The accidental death benefit rider (double indemnity) pays a multiple of the death proceeds if the cause of death is a covered accidental event. The accelerated benefit rider pays a portion of the death benefit if the insured is diagnosed with a terminal illness. The no-lapse guarantee rider guarantees a death benefit for life so the insured is covered even if premium payments lapse. An additional insured rider provides a death benefit on the lives of family members. A children's insurance rider extends a death benefit to the insured's child (up to age 25).
