Managing Universal Life Policy - Part 2

MAXIMUM FUNDING LEVEL

If your universal life policy has proved to be a good place to store cash, if it has provided a competitive after-tax rate of return, you might maximum-fund it and run up against the maximum funding level. Your policy can accept only a limited amount of money if it is to retain the tax advantages of a life insurance policy. Contact your company to find out just how much is allowed. If you want to put more money in than code permits, you can ask the insurance company to increase your death benefit. This entails expenses, additional mortality costs, and proof of insurability. The increased death benefit will provide an increased maximum­funding level.

EXPENSES

Universal life is relatively new compared with whole life. But insurance companies and their personnel are learning how to manage this type of policy while being assisted by the improvements in technology. There is a possibility that the expenses associated with its management could go down. This will benefit us all-policy owners, companies, and intermediaries. The good news is that you can watch your expenses, and you should. Complain if they are no longer competitive, and if that doesn't work, consider moving to a better contract. Do it carefully with the help of your advisors if you are attempting to do a 1035 tax-free exchange.

MORTALITY COSTS

What about mortality? Will it continue to improve, or will some new illness cause rates to go up to the maximum guaranteed by the contract? The AIDS threat, for example, has made insurance companies fear the latter. The risk of reduced returns as a result of increasing mortality costs is not unique to universal life. Higher death rates affect all insurance. Term rates can go up, and whole life dividends can be diminished.

The fact is that mortality rates have been coming down. We are expecting the industry to come out with a new mortality table soon. People are living longer, healthier lives. Think about how many centenarians you are aware of and understand that you could be in their ranks one day. The maturity value of your policy, its face amount or more, could be very important to you or your beneficiaries.