What's New about Universal Life Insurance - Part 2

Universal life has all these unique characteristics, but the most notable is that when it entered the life insurance marketplace in the late 1970s, its basic investment vehicle was current interest rate investments. The interest rate to be earned on the account value of this type of policy usually is guaranteed for 1 year. At the end of that year, the policy owner is informed of the rate for the next 12-month period.

Universal life brought total disclosure to the life insurance industry. The specific charges, expenses, and credits are itemized and available to the policy owner. The policies were referred to as transparent because of the fact that detailed information regarding expenses, cost of insurance, account value, and interest earnings was provided for the first time in universal life. Each item now is disclosed, allowing you to shop for policies with the lowest expenses, the lowest costs of life insurance (amount at risk), and competitive interest rates.

When you are considering putting premium into a universal life policy, ask to see the expenses and credits on a monthly basis. Those for the most current years will provide the most valid information because the insurance company has the right to change expenses, eGIs, and interest crediting rates in the future. Their right to change expenses and eGIs is limited by contractually stated limits.

You will want to ask the following questions of whomever is assisting you in putting the policy in force:

1. What deposit do you recommend for this policy?

2. How often should I make these deposits?

3. How long should I expect to make these deposits using conservative interest rate assumptions?

4. How much is taken out for state premium tax?

5. What amounts are deducted for insurance company expenses initially, and then per month?

6. What is the maximum expense charge that could be made?

7. What is the amount at risk, meaning how much life insurance is being offered by this policy? Does the death benefit include my account value (option A or 1), or is it paid in addition to my account value (option B or 2)?

8. What are the current monthly cost and the annual cost for this amount at risk? You will find that this is referred to as the mortality charge or costs of insurance. You will recognize it as the cost of the term insurance within the contract.

9. What is the contractual maximum mortality charge that could be made?

10. Are there any other additional charges being made against the policy account for other policy benefits?