Indexed Universal life insurance contracts differ from traditional whole life policies by specifically separating and identifying the mortality,
expense, and cash value parts of a policy. Dividing the policy into
these three components allows the insurance company to build a
higher degree of flexibility into the contract. This flexibility allows
(within certain limits) the policy owner to modify the policy face
amount or premium, in response to changing needs and circumstances.
A monthly charge for both the mortality element and the expense element is deducted from a policy’s account balance. The remainder of the premium is allocated to the cash value element, where the funds earn interest. Unlike traditional whole life policies, complete disclosure of these internal charges against the cash value element is made to the policy owner in the form of an annual statement.
Many indexed universal life policies have several different provisions by which the accumulated cash value can be made available to a policy owner during life, without causing the policy to lapse. If a policy is terminated without the insured dying, there are various surrender options for the cash value.
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EduTrainer Steve Savant coaches you through the basic understanding and planning applications of life insurance.