This type of product maximizes the deferred tax growth of your cash value
If you surrender a universal life policy you may receive less than the cash value account because of surrender charges which can be of two types. A front-end type policy will deduct a percentage of the premium paid, while a back-end type policy will deduct a more substantial charge but only if the policy is surrendered before a specified period, generally 10 years but which could be as long as 20 years. A back-end type policy would be preferable if you intend to maintain coverage, and the charge decreases with each year you continue the policy. Remember that the interest rate and expense and mortality charges payables initially are not guaranteed for the life of the policy.
Although this type of policy gives you maximum flexibility, you will need to actively manage the policy to maintain sufficient funding, especially because the insurance company can increase mortality and expense charges. You should remember that the mortality charges increase, as you become older.
Excess Interest Whole Life If you are not interested in all of the flexible features of Universal Life, some insurers offer fixed premium versions called excess interest whole life. The key feature is that premium payments are required when due just like traditional whole life. If premiums are paid when due, the policy will not lapse.
On a fixed-dollar basis, premium, face amount and cash values are specified in dollar amounts
With the premium level fixed, any additional or excess interest credited, or better life insurance experience, will improve the cash value of the policy. The premium level will probably be comparable to traditional whole life policies. Cash value may be applied to pay future premium payments.
Current Assumption Whole Life Current assumption whole life is similar to a universal life policy but your company determines the amount of premium to be paid. The company sets the initial premium based upon its current estimate of future investment earnings and mortality experience and retains the contractual right to reevaluate its original estimates to increase or decrease your premium payments later. If premiums are increased, some policies let you ount of coverage so that you can continue to pay the original premium. Current mortality and experience and investment earnings can be credited to the insurance policy either through the cash value account and/or the premium or dividend structure (depending on whether it is a stock or mutual company). Regardless, this type of policy has the following characteristics:
- The premiums are subject to change based on the experience (mortality, expenses, investment) of the company. The policyowner does not exercise control over the changes.
- The policyowner can use the cash value to make loans just as he/she would with any traditional ordinary life insurance policy.
- A minimum amount of cash value is guaranteed, just as with traditional ordinary life insurance.
- The death benefit does not fluctuate.
Single Premium Whole Life There are a few single premium life products, which determine the premium using the current interest rate assumption. You may be asked to make additional premium payments where coverage could terminate because the interest rate dropped. Your starting interest rate is fixed only for a year or in some cases three to five years. The guaranteed rate provided for in the policy is much lower (e.g., 4%). Another feature that is sometimes emphasized is the «no cost» loan. Companies will set the loan interest rate to be charged on policy loans equal to the rate that is being credited to the policy.
Variable Life
Most types of both traditional and interest sensitive life policies can be purchased on either a fixed-dollar or variable basis.