Insurance policies can have many contractual guarantees and options, depending on the type of policy purchased. In this note, we want to provide you with an overview of the options available within different types of insurance plans: term, participating, and universal life. Let’s break down each section to provide additional context:
Term Insurance
RENEWAL AT END OF TERM
This is the default action if no other action is taken by the policyholder. It allows for the continuation of coverage beyond the initial term, typically at a higher premium. This is done one of two ways, through yearly renewal term (YRT) or level term renewal. YRT renews at the end of every policy year and is based on the life insured’s risk of death for that year. Level term renews at a fixed higher premium for the duration of the renewed term.
CONVERSION TO PARTICIPATING OR UNIVERSAL LIFE PERMANENT INSURANCE
Policyholders have the flexibility to convert their term policy into a participating (Par) or universal life (UL) policy at any time, providing them with permanent coverage options.
T10 TO T20 CONVERSION
Term policies with a duration of 10 years can be converted to 20-year term policies, starting from the first anniversary up to the 7th anniversary, extending coverage for a longer period.
FACE AMOUNT REDUCTION
Policyholders can decrease the face amount of their policy at any time through a policy change, adjusting coverage to better suit their evolving needs.
Participating Policy Options
Contractual Conversions
EXERCISE RIDERS
Policyholders have the option to convert their participating policy using existing riders such as term riders, Guaranteed Insurability Benefit (GIB) ridera, and Accidental Death (AD) riders.
TERM RIDERS
Adds additional coverage for death, over and above that provided by the base policy.Policyholders can convert the term portion of econo/enhanced to permanent insurance.The new policy must meet the minimum issue requirements.GIB Rider: gives the policyholder the option to buy additional life insurance coverage in the future without providing proof of insurability.
ACCIDENTAL DEATH BENEFIT
Provides an extra benefit, over and above the regular death benefit, if the life insured dies as a result of an accident.
Policy Changes
REDUCE THE FACE AMOUNT
The policyholder can request a specific reduced amount of coverage, or they can request a specific premium, or the lowest amount of insurance coverage that is available without causing the policy to become non tax exempt.
REDUCED PAID-UP (RPU)
Allows the policyholder to stop paying premiums entirely, while still keeping some life insurance coverage in place for life.
Premium Offset
Policyholders can offset premiums using cash values that are generated within the policy each with different mechanisms for utilizing the policy cash values.
FULL PREMIUM OFFSET
The entire premium is paid with cash valuesLevel premium offset: a specified dollar amount of the policy cash value is applied every year to reduce the premium. The policyholder is billed the difference. The payment of premium split is the same each year.
VARIABLE PREMIUM OFFSET
A certain percentage of the dividend declared is applied to the premium each year with the policyholder billed the difference. The payment of premium split is different each year.
Dividend Option Changes
Policyholders can modify dividend options, such as converting dividends to Paid-Up Additions (PUA). This may require medical evidence. Adding or removing Automatic Dividend Option (ADO), which may necessitate medical evidence, cash dividend, premium reduction, accumulation, or one year term insurance.
PAID UP ADDITIONS (PUA):
The annual policy dividend is used as a single premium to purchase an additional amount of paid-up insurance. 90% of participating whole life policies are sold using the PUA option.
OTHER OPTIONS
Additional options include cash loans, withdrawal of PUAs, using cash values from one policy to pay premiums or loans on another policy, and premium loans, with each option having specific implications and considerations.
Universal Life Options
GENERAL OPTIONS
- Universal life policies offer a range of options including changing investment allocations
- Cash loans or withdrawals
- Can vary deposit amounts
- May overfund within limits
- Paying premiums with fund values
- Exercise riders that exist on the policy, ex, term rider, GIR, BVP
POLICY CHANGES
- Universal life policyholders can make changes from yearly renewable term (YRT) to level cost of insurance (LCOI)
- Structure or decreasing the face amount, though certain restrictions may apply.
Conclusion
Your life insurance policy probably has even more flexibility and potential customization than you realize. You can adjust insurance coverage to meet your changing needs and circumstances. Consult with your Unity advisor for specific quotes and responses tailored to your individual situation.