Flexibility of Face Amount and Premium

The flexibility of the face amount and the premium features of universal life allows you to adjust the face amount and what is paid into the policy so that it fits you, rather than having a contractually stipulated face amount and payment of premium, as in whole life.

You are able to change the face amount or premium level to suit your own particular needs. Once all the policy data are in the computer, it's not difficult to raise or lessen the amount at risk (life insurance). If you buy a policy and shortly thereafter elect to reduce the amount at risk, you likely will forfeit a portion of your account value in the form of a back-end load.

The amount of that forfeiture will be disclosed in the contract. On the other hand, if you direct the company to increase the amount at risk, the insurance company probably will ask you to provide evidence that you are still in good health. Be sure to ask what expenses you will incur at the time of increase. With some contracts, this is the most efficient (least costly) method of increasing your life insurance coverage. It is important that the universal life is flexible and can adapt to your lifestyle.

You'll like universal life if you prefer an investment that pays current, competitive market rates of interest as opposed to the long-term bond and mortgage account returns of whole life. It also has appeal if you think that you may want to use its adjustable features. The market share of this product has decreased dramatically since 1986 because of the decreasing interest rates and competition from variable life. In fact, it has dropped from 38 percent in 1985 to 16 percent in 2000.

There is no longer any surrender charge that the policy owner would be exposed to if they chose to terminate this policy and take the cash surrender value. Surrender charges may also be referred to as Contingent Deferred Sales Charges (CDSC) or back-end loads.

You could use the investment feature of the policy and ask the insurance company for the amount of the maximum that could be put in. You might wish to specify that you want to have access to this extra deposit without taxation or penalties through withdrawal or policy loan. This requires that you stay below what is called the seven­pay-maximum.