Interest-sensitive, Market-sensitive and Adjustable Life Products

A universal life policy has two components:

an insurance component and a cash account. The insurance component of a universal life policy is always annually renewable term insurance.

Variable universal life insurance

is a type of insurance that combines many features of the whole life with the flexible premium of universal life and the investment component of variable life, making it a securities version of the universal life insurance.

Agents selling variable life insurance products must:

Be registered with FINRA; Be licensed by the state to sell life insurance; and Have received a securities license.

Separate account

Because the insurance company is not sustaining the investment risk of the contract, the underlying assets of the contract cannot be kept in the insurance company's general account. These assets must be held in a separate account, which invests in stocks, bonds, and other securities investment options. Any domestic insurer issuing variable contracts must establish one or more separate accounts. Each separate account must maintain assets with a value at least equal to the reserves and other contract liabilities. Assets in the separate account cannot be commingled with assets in the general account.

Variable Life

Key Features: Permanent insurance Premium: Fixed (if Whole Life); flexible (if Universal Life) Face Amount: Can increase or decrease to a stated minimum Cash Value: Not guaranteed; separate account Policy Loans: Can borrow cash value

Universal Life

Key Features: Permanent insurance with renewable term protection component Premium: Flexible; minimum or target Face Amount: Flexible; set by policyowner with proof of insurability Cash Value: Guaranteed at a minimum level; general account Policy Loans: Can borrow cash value

Variable life insurance

(sometimes referred to as variable whole life insurance) is a level, fixed premium, investment-based product. Like traditional forms of life insurance, these policies have fixed premiums and a guaranteed minimum death benefit. The cash value of the policy, however, is not guaranteed and fluctuates with the performance of the portfolio in which the premiums have been invested by the insurer. The policyowner bears the investment risk in variable contracts.

Variable universal life insurance, like universal life itself, has the following features and characteristics:

A flexible premium that can be increased, decreased or skipped as long as there is enough value in the policy to fund the death benefit; Increasing and decreasing the amount of insurance; and Cash withdrawals or policy loans. *Unlike universal life, most of the investment vehicles in variable universal life policies do not guarantee return.

KNOW THIS

If an insured skips a premium payment on a universal life policy, the missing premium may be deducted from the policy's cash value. The policy will NOT lapse.

KNOW THIS

In variable contracts, the policyowner bears the investment risk (assets in a separate account).

Adjustable Life

Key Features: Can be Term or Whole Life; can convert from one to the other Premium: Can be increased or decreased by policyowners Face Amount: Flexible; set by policyowner with proof of insurability Cash Value: Fixed rate of return; general account Policy Loans: Can borrow cash value

Adjustable life

Typically, the policyowner has the following options: Increase or decrease the premium or the premium paying period; Increase or decrease the face amount; or Change the period of protection.

Under Option B (Increasing Death Benefit option)

the death benefit includes the annual increase in cash value so that the death benefit gradually increases each year by the amount that the cash value increases. At any point in time, the total death benefit will always be equal to the face amount of the policy plus the current amount of cash value. Since the pure insurance with the insurer remains level for life, the expenses of this option are much greater than those for Option A, thereby causing the cash value to be lower in the older years (all else being equal).

Under Option A (Level Death Benefit option)

the death benefit remains level while the cash value gradually increases, thereby lowering the pure insurance with the insurer in the later years. Notice that the pure insurance is actually decreasing as time passes, lowering the expenses, and allowing for greater cash value in the older years.

Adjustable life

was developed in an effort to provide the policyowner with the best of both worlds (term and permanent coverage). An adjustable life policy can assume the form of either term insurance or permanent insurance. The insured typically determines how much coverage is needed and the affordable amount of premium. The insurer will then determine the appropriate type of insurance to meet the insured's needs. As the insured's needs change, the policyowner can make adjustments in the policy.

Universal life policies

allow the partial withdrawal (partial surrender) of the policy cash value. However, there may be a charge for each withdrawal and there are usually limits as to how much and how often a withdrawal may be made. During the withdrawal, the interest earned on the withdrawn cash value may be subject to taxation, depending upon the plan. The death benefit will be reduced by the amount of any partial surrender. Note, however, that a partial surrender from a universal life policy is not the same as a policy loan.

Variable life insurance products

are dually regulated by the State and Federal Government. Due to the element of investment risk, the federal government has declared that variable contracts are securities, and are thus regulated by the Securities and Exchange Commission (SEC), and the Financial Industry Regulatory Authority (FINRA). Variable life insurance is also regulated by the Insurance Department as an insurance product.

The target premium

is a recommended amount that should be paid on a policy in order to cover the cost of insurance protection and to keep the policy in force throughout its lifetime.

Interest-sensitive whole life, also referred to as current assumption

is a whole life policy that provides a guaranteed death benefit to age 100. The insurer sets the initial premium based on current assumptions about risk, interest and expense. If the actual values change, the company will lower or raise the premium at designated intervals. In addition, interest-sensitive whole life policies credit the cash value with the current interest rate that is usually comparable to money market rates, and can be higher than the guaranteed levels. The policy also provides for a minimum guaranteed rate of interest.

Universal life insurance

is also known by the generic name of flexible premium adjustable life. That implies that the policyowner has the flexibility to increase the amount of premium paid into the policy and to later decrease it again. In fact, the policyowner may even skip paying a premium and the policy will not lapse as long as there is sufficient cash value at the time to cover the monthly deductions for cost of insurance. If the cash value is too small, the policy will expire. is also known by the generic name of flexible premium adjustable life. That implies that the policyowner has the flexibility to increase the amount of premium paid into the policy and to later decrease it again. In fact, the policyowner may even skip paying a premium and the policy will not lapse as long as there is sufficient cash value at the time to cover the monthly deductions for cost of insurance. If the cash value is too small, the policy will expire. Since the premium can be adjusted, the insurance companies may give the policyowner a choice to pay either of the two types of premiums: Minimum Premium and Target Premium

The main feature of indexed whole life (or equity index whole life)

is that the cash value is dependent upon the performance of the equity index, such as S&P 500 although there is a guaranteed minimum interest rate. The policy's face amount increases annually to keep pace with inflation (as the Consumer Price Index increases) without requiring evidence of insurability. Indexed whole life policies are classified depending on whether the policyowner or the insurer assumes the inflation risk. If the policyowner assumes the risk, the policy premiums increase with the increases in the face amount. If the insurer assumes the risk, the premium remains level.

The minimum premium

is the amount needed to keep the policy in force for the current year. Paying the minimum premium will make the policy perform as an annually renewable term product.

Universal life offers

one of two death benefit options to the policyowner. Option A is the level death benefit option, and Option B is the increasing death benefit option.

Interest-sensitive whole life

provides the same benefits as other traditional whole life policies with the added benefit of current interest rates, which may allow for either greater cash value accumulation or a shorter premium-paying period.