Flexible Policies

Address two needs:

More flexibility

Greater potential for growth

Adjustable Life Insurance Policy

There are three choices:

Death benefit

Premium

Type of insurance

Insured would choose two of these that will dictate the third. The policy can be Term or Whole Life and can be easily changed from one to the other.

The changes can be made any time that the insured wishes.

Increase or decrease face amount within the limits and may need proof of insurability.

Guaranteed minimum death benefit

Lengthen or shorten coverage period

Variable Whole Life

Coverage for whole of insured’s life to age one hundred and fixed, level premiums

The policy would have a guaranteed minimum death benefit

Cash value is not guaranteed

Invested in a separate account like a mutual fund type vehicle

Variable whole Life is a security:

Securities license (NASD) as well as insurance license is necessary to sell

Must deliver a prospectus or booklet at the time of solicitation

Cash value can grow too fast

There is a danger of this becoming a Modified Endowment Contract

This can increase death benefit to avoid MEC designation, which could create a “corridor”

AIR – Assumed Interest Rate – maximum projection cannot exceed 12%.

Loan Values – Can be restricted to 75% to 90% of the current cash value of the policy.

Universal Life

Death benefit separated from Cash Value

Premiums paid into Cash Value of the policy

Cash Value funds the death benefit purchase and company expenses

The insurance death benefit element is Term insurance to 100.

If minimum premium is paid, the cash value actually never builds because it constantly is used to pay expenses and buy the Term coverage.

If target premium is paid, the cash value will build much like a Whole Life policy.

Universal Life Features:

Death benefit can be lowered or raised with evidence of insurability.

Cash Value grows at a minimum guaranteed rate, but can higher because it is interest sensitive.

Cash withdrawals or Partial Surrenders:

There will be no interest

There will be no repayment requirements

There will be no negative tax ramifications

If cash value is adequate to pay expenses and insurance costs, premiums may be lowered or skipped completely.

The minimum premiums will vary dependent on the investment return.

Two Forms:

Option One – The protection element increases IF the investment return is so favorable that the policy is in danger of becoming a MEC.

Option Two – The protection element is always increasing to pay both the death benefit and the cash value at the maturity of the policy period.

Waiver of the Premium – The varying premiums demands two forms.

Straight Waiver of the Premium rider will pay whatever has recently been the average premium.

Waiver of the Cost of Insurance will pay the minimum premium.

Variable Universal Life

This policy works just like the Universal Life policy except the cash value is not guaranteed; it is invested in the stock market through a Separate Account.

Requires a Security license and Prospectus or booklet.

In this chapter, you have been introduced to four flexible policies. Below, you will find a summary chart describing the characteristics of these four policies.

	Premium	Death Benefit	Cash Value	Type of Insurance
Adjustable	Flexible	Flexible	Guaranteed	Term/Whole Life
Variable Whole Life	Fixed	Minimum Guaranteed	Not Guaranteed	Whole Life
Universal Life	Flexible	Flexible	Minimum Guaranteed Interest Sensitive	Term
Variable Universal	Flexible	Flexible	Not Guaranteed	Term

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