Universal Life Insurance, also referred to as Flexible Premium Universal Life,
lets you vary your premium payments and when you will pay the premiums, with some limits on how
flexible you can be. For example, you may be able to skip a premium payment; or, increase or
decrease your premium payments as long as the total amount of premiums you are paying in over a
period of time is enough to keep the policy in force. As you get older, however, the minimum
premium payments may increase.
Cash surrender value for a Universal Life Insurance policy depends on the performance of the
insurance company's investments. Make sure you understand whether any benefits or cash
surrender values are guaranteed. Even if there is enough in your account to pay the premiums,
continuing to pay premiums yourself means you build up more cash surrender value.
If you do not pay enough in premiums, you may reach the point where your insurance coverage
will end. To prevent that, you may need to raise your premium payments or lower your death
benefits. The insurance company must send you an annual report and will also notify you if you
are in danger of losing your policy due to insufficient value.
When you buy Universal Life Insurance, you may be able to change the amount of the death
benefit (also called the "face amount"), after you buy the insurance. But, to increase the
death benefit, you may need to fill out another health history or have a new medical exam.
Variable Life Insurance
Variable Life Insurance benefits (both the death benefit and earnings) vary
based on the investment performance of the assets in which your premium payments are invested.
You will generally be offered a variety of investment options (equity, bond, and money market
mutual funds). Death benefits and cash values are directly related to the performance of
investment options you choose. There may be a guaranteed minimum death benefit; however, you
may be required to pay extra for that feature.
There are two kinds of Variable Life Insurance policies. You can buy a policy which has
premiums with set times and amounts, or you can buy a policy which allows changes in premium
payment times and amounts. Unlike Universal Life Insurance, however, the death benefit will
also change depending on how much you pay in and the performance of the investments you
The insurance company will give you a "prospectus" which will explain the policy before you buy
it. The company will probably describe the different investment options in the prospectus, but
you may also ask for additional information about the investment options. Study the prospectus
carefully and be sure to ask the company about anything you don't understand.Agents who sell
Variable Life Insurance must have both a Massachusetts insurance agent license and be
registered as representatives of a broker-dealer licensed by the National Association of
Securities Dealers (NASD) and be registered with the Securities and Exchange Commission (SEC)
as well. The SEC also reviews and approves the contents of the prospectus you will receive, and
is currently involved in an effort to make these prospectuses much more understandable to
With a Variable Life Insurance policy, there are usually no guarantees. If the investments you
choose lose money, you could find that the value of your account is far less than the amounts
you have paid in.
Although some Variable Life policies may include a minimum guaranteed death benefit, others do
not have this guarantee. It is possible that, if you were to die when the values were low, the
death benefit your beneficiaries received would be reduced to little or nothing.
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