3.7.3 Universal Life Policies
Universal life policies also contain a high degree of flexibility. Whole life policies contain fixed amounts (premiums, face amount, cash value accumulation), whereas universal life offers its policyowners the ability to adjust premium amounts, frequency of payments, and the face amount as their individual needs change. The policy's mortality charge increases steadily with age. The policyowner is able to access the accumulation of the policy's cash value in a partial withdrawal system, whereas whole life policies can only be accessed through an account loan or through full cash surrender.
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 policies have two death benefit options available.
- A specified amount can be designated. The death benefit equals the cash value plus the remaining insurance (decreasing term plus increasing cash value). If the cash value approaches the face amount before the policy matures, an additional amount of insurance (called the corridor), is maintained in addition to the cash value.
- The death benefit equals the face amount plus the cash value (level term + increasing cash value).
