Question

Understanding universal life insurance Universal life insurance combines elements from term and whole life insurance. Term policies provide a death benefit _______ savings component, whole life policies provide a death benefit _______ savings component, and universal policies provide a death benefit _______ savings component. To understand how universal premiums are allocated, consider the following example. Kathy is a 37-year-old lawyer who has taken out a universal life insurance policy to protect her two children (ages 8 and 6) in the event of her death. Each year, Kathy chooses how much she would like to contribute to the policy, as shown by the first row of the table below. The insurance company subtracts from this an administrative fee along with the cost of the death benefit (the _______ portion of the policy) then puts the remainder into the rate of cash value (or _______) portion of the policy. This money earns interest at a _______ rate of return. Based on the given information, calculate the amount that is added to the cash value portion of the policy in each of the first three years. The cost of the death benefit portion of universal policies is only fixed for certain periods and rises with age, as is the case with _______ life insurance policies. Suppose that in the 14th year of her policy, her cost of death benefit has risen substantially. At the same time, she is paying college tuition and currently cannot afford to pay her life insurance premium. True or False: Under the terms of a standard universal policy, if Kathy stops paying her premiums, then her policy will be put on hold until she resumes payment (and pays back all missed premium payments). False True

Answer 1

The term policy provides a death benefit with no saving components.and whole life policy provide a death benefits with saving components and Universal life insurance is flexible permanent life insurance with low cost protection of term life insurance and savings element which will add up to cash value.

The insurance company substracts the administration fees and cost of death benefits from the cash value.as shown below

	Year 1	Year 2	Year 3
Premium	2756	2248	1519
Admin Fees	85	85	85
Cost of Death Benefit	120	120	120
Amount added to cash value	2551	2043	1314

The cost of the death benefits portion of universal policy is only fixed for certain period and rises with age, as is the case with whole life insurance policy.

It's True - Under the Universal Policy insured can adjust the premiums within the insurance cntract. That means it can be increase, decrease, or even skip the payments depending on the amount of premium paid during the period