Universal Life
How does one avoid MEC?
Excess premiums may be returned to policy holder with interest within 60 days following policy anniversary
What factors do you compare when buying Universal life?
-Front end expense loads -current and guaranteed interest -current and maximum mortality rates -Surrender charges -Best shortcut: compare cash values for first five years
What makes Universal life "permanent insurance"?
Cash and Loan Values
What are alternatives to UL?
Current assumption whole life, variable life, and deferred annuity plus term
What are the advantages of UL?
Flexible premium; death benefit is adjustable; Transparency of policy elements; current assumptions for interest, mortality and expenses
What type of premium does Universal life have?
Flexible; can adjust or skip payments
What creates a MEC?
INCREASE in premium payments REDUCTION in death benefit WITHDRAWAL of CV any of these can trigger conversion to MEC
Option B provides what type of Death Benefit?
Increasing Death Benefit
How are MEC withdrawals taxed?
Interest out first- taxed as ordinary income as opposed to interest out last and tax deferred with life insurance and also there's a 10% penalty on interest distributions prior to age 59 1/2
What current assumptions are in Universal life?
Interest, mortality, expense
Option A provides what type of death benefit?
Level death benefit
Why is it an excellent program for a young family if they have the discipline and resources to maintain it?
Low initial premium, high death benefit, cash value accumulation
How does one avoid lapse in UL policy payment?
Maintaining an adequate cash value to cover annual mortality cost
What are "guideline annual premiums"?
Maximum actuarial premiums established by IRS based on insured's age and policy death benefit
What is a MEC?
Modified Endowment Contract; when total premiums paid during the first 7 years exceeds the sum of the guideline annual premiums
When is Universal Life indicated?
Need for flexible premium, excellent program for young family if discipline and resources to pay adequate premiums to maintain policy
Disadvantages of Universal Life are...
No forced level premium payment, so the policy may lapse if premium payments are too low and CV not adequate to cover current mortality cost; Premiums may increase in the future to cover future mortality costs
What death benefit options are available?
Option A(level) or Option B (increasing)
Does Universal have adjustable death benefit?
Yes , Option A or Option B
Why does UL provide Ultimate Flexibility?
premium payments can be adjusted or skipped; death benefit can be adjusted