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