Universal Life Insurance

Definition

Universal life insurance is characterized by flexible premiums, flexible face amounts, and unbundled pricing factors. The policy owner is given the flexibility to determine, within certain limits, the amount of the premium to pay for coverage. The larger the premium the greater the cash value.

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Changes in Premium

The face amount and the amount of premiums can be changed during the life of the policy with the insurance company’s approval. An increase in coverage will typically require evidence of the insured’s continued insurability. The life company must ensure that any decreased coverage will not cause the policy to lose its status as an insurance contract and instead be classified as an investment contract.

The insurance company imposes maximum deposit limits to keep the account tax sheltered. This practice is referred to in the industry as the MTAR line. Minimum premiums must be maintained so that the policy stats in force.

Death Benefit

The death benefit can be level or increasing. If the death benefit is level, it is equal to the face amount of the policy. If the death benefit is increasing, it can be equal to the face amount of the policy plus the amount of the policy’s cash value (net amount at risk is always equal to the face amount), or it can be a predetermined index amount.

Cost of insurance

Yearly renewable term (YRT) costs of insurance:

This option offers renewable costs of insurance, based on the insured’s age on each policy anniversary. This involves higher insurance costs from year to year up to age 85, after which time the costs remain level. These costs are established on the issue date and guaranteed to age 100, after which time the insurance is paid-up.

Level costs of insurance for life:

The level cost of insurance for life option is based on the insured’s age when the contract is issued; the costs remain the same for the duration of the coverage. The insurance is paid-up at age 100. Since these costs are level for the duration of the insurance coverage, they are higher than YRT costs of insurance for a certain number of years, but lower in later years.

Riders and Benefits (Provided by Standard Life Perspecta Reference Guide)

10-Year Renewable and Convertible Term – Provides level insurance coverage, which automatically renews each tenth coverage anniversary for ten-year periods until the Policy Anniversary nearest to the Insured’s 85th birthday. The premium changes at each tenth anniversary. All premiums are applicable for the duration of the Rider and form part of the contract at issue. Prior to the Policy Anniversary nearest to the Insured’s 65th birthday, the coverage under this rider may be converted to a permanent insurance.

20-Year Renewable and Convertible Term – Provides level insurance coverage which automatically renews each twentieth coverage anniversary for twenty-year periods until the Policy Anniversary nearest to the Insured’s 85th birthday. The premium changes at each twentieth anniversary. All premiums are applicable for the duration of the Rider and form part of the contract at issue. Prior to the Policy Anniversary nearest to the Insured’s 65th birthday, the coverage under this rider may be converted to a permanent insurance.

Critical Illness Insurance Rider – Provides a lump-sum payment to the insured that falls ill with one of the specific critical conditions covered. The critical illness rider will be paid provided the insured is still living at the end of the waiting period. The waiting period is 30 days unless otherwise specified in the contract.

Return of Premium on Death – If the injured dies without having suffered from a covered illness, all Critical Illness premiums that have been paid (but not exceeding the amount of the lump-sum payment) will automatically be returned.

Children’s Protection Rider – Provides level insurance coverage to age 25 for each covered unmarried child. This rider expires at the child’s 25th birthday. At such time, or upon the child’s marriage (whichever comes first) the Owner may convert the insurance eon the life of that child to an insurance policy.

Guaranteed Insurability Benefit – Provides the option of increasing the amount of insurance on any Insured under age 40 (at several option dates) without the need to provide evidence of insurability.

Accidental Death Benefit – Provides an additional amount of insurance for any Insured under the policy. This amount is only given to the Beneficiary if the Insured dies as a result of an accident.

Waiver of Costs on Disability – This benefit waives the costs of coverage during the disability of the Owner(s) and/or the Insured(s) for the disabilities commencing prior to their age 60.

Death and Disability Waiver – provides the option to waive an amount when the Owner of a policy, under which a juvenile is insured, dies or becomes disabled before the Policy Anniversary nearest to the juvenile’s 25th birthday or before the Policy Anniversary nearest to the Owner’s 60th birthday, whichever comes first. At the time of issue the Owner will choose the amount to be waived subject o a maximum amount