Minimum Funding Level

The minimum funding level requires that there be enough money in the policy account to recover the insurance and expense charges for the year.

Under a minimum funding arrangement, the policy account could dwindle to zero or to the amount of the remaining back-end load, at which time the insurance company would call on you for more money. Unless you made a premium deposit sufficient to cover the insurance and expenses, the policy could terminate.

In some cases, the company will not require payment to cover the full year, but rather a shorter period, such as one quarter. Remember that if you decide not to make an additional premium payment, the policy will terminate, and you will pay the back-end load within the policy. When you use a minimum funding strategy, you really are purchasing yearly renewable term insurance. Generally, it is not economical to use a universal life policy as a term policy. The expenses of such a policy typically are more than a regular term policy, and you also have to contend with the back-end load. Furthermore, there usually is a target premium on these flexible-premium products. This is the premium the company considers adequate to maintain the policy on a long­term basis.