Duration

The length of term policies varies; common terms are one, five, ten, fifteen, and twenty years. Term policies are often not renewable beyond age sixty-five or seventy because of adverse selection that increases with age. Increasingly, however, yearly renewable term policies are renewable to age ninety-five or one hundred, although it would be unusual for a policy to stay in effect at advanced ages because of the amount of the premium. Yearly renewable term policies are subject to high lapse ratesIn term life insurance, failure to renew policies. (that is, failure to be renewed) and low profitability for the insurer.

Short-term life insurance policies involve no investment element. Long-term contracts (e.g., term to age sixty-five), when accompanied by a level premium, can accumulate a small cash value element in the early years, but this is depleted during the latter part of the term because then the cost of mortality exceeds the sum of the level premium and the investment earnings. Two options are typically available with term insurance sold directly to individuals: renewability and convertibility.

Renewability

If the policyholder wishes to continue the protection for more than one term, the insurer will require a new application and new evidence of insurability. The risk of being turned down may be handled by purchasing renewable term insurance. The renewability optionIn term life insurance, gives the right to renew the policy for a specified number of additional periods of protection at a predetermined schedule of premium rates without new evidence of insurability. gives the policyholder the right to renew the life insurance policy for a specified number of additional periods of protection, at a predetermined schedule of premium rates, without new evidence of insurability. Renewability protects insurability for the period specified. After that period has elapsed, the insured must again submit a new application and prove insurability.

Each time the policy is renewed, the premium increases because of the insured’s increasing age. Because the least healthy tend to renew and the most healthy tend to discontinue, the renewable feature increases the cost of protection. The renewable feature, however, is valuable in term life insurance.

Convertibility

A term life policy with a convertibility optionIn term life insurance, provides the right to convert the policy to a whole life or another type of insurance before a specified time without proving insurability. provides the right to convert the term policy to a whole life or another type of insurance, before a specified time, without proving insurability. If, for example, at age twenty-eight you buy a term policy renewable to age sixty-five and convertible for twenty years, you may renew each year for several years and then, perhaps at age thirty-six, decide you prefer cash value life insurance. Your motivation may be that the premium, though higher than that of the term policy at the age of conversion, will remain the same year after year; the policy can be kept in force indefinitely; or you may want to include cash values among your investments. If you become uninsurable or insurable only at higher-than-standard (called substandard) rates, you will find the convertibility feature very valuable.

Most life insurance conversions are made at attained age premium ratesIn life insurance conversion, when the premium for the new policy is based on the age at the time of the conversion., meaning that the premium for the new policy is based on the age at the time of the conversion. The insured or policyowner pays the same rate as anyone else who can qualify for standard rates based on good health and other insurability factors. The option results in no questions about your insurability.

Death Benefit Pattern

The death benefit in a term policy remains level, decreases, or increases over time. Each pattern of protection fits specific needs. For example, a decreasing term policy may be used as collateral for a loan on which the principal is being reduced by periodic payments. An increasing amount of protection helps maintain purchasing power during inflation. The increasing benefit is likely to be sold as a rider to a level benefit policy.

Mortgage protection insuranceDecreasing term insurance; with each mortgage payment, the face value of the insurance decreases to correspond to the amount of the loan that is outstanding. is decreasing term insurance; with each mortgage payment, the face value of the insurance decreases to correspond to the amount of the loan that is outstanding. Otherwise, mortgage protection is like other decreasing term policies.Before buying a mortgage protection policy, consider the pros and cons of paying off your mortgage at the time of death. Will your spouse’s income be sufficient to meet the mortgage payments? Is the interest rate likely to be attractive in the future? Will the after-tax interest rate be less than the rate of growth in the value of the house, resulting in favorable leverage? Credit life insurance is similar to mortgage protection. In credit life insuranceProvides that the death benefit changes, up or down, as the balance changes on an installment loan or other type of consumer loan., the death benefit changes, up or down, as the balance changes on an installment loan or other type of consumer loan.

Premium Patterns

An insurer’s rates for nonsmokers may be 40 percent or so lower than those for smokers. Rates for women are less than for men (see the box “Should Life Insurance Rates Be Based on Gender?” in Chapter 17 "Life Cycle Financial Risks"). The yearly renewable term contract usually has a table of premiums that increase each year as the insured ages and as time elapses since insurability was established.

Reentry termIn life insurance, allows the insured to re-demonstrate insurability periodically, perhaps every five years, and qualify for a new (lower) select category of rates that are not initially loaded for adverse selection. allows the insured to demonstrate insurability periodically, perhaps every five years, and qualify for a new (lower) select category of rates that are not initially loaded for adverse selection. If the insured cannot qualify for the new rates, usually because of worsening health, he or she can either pay the higher rates of the initial premium table (ultimate rates) or drop the policy and try to find better rates with another insurer.

Summary: Features of Term Life

In summary, in term life we see the following features (see also Table 19.1 "Characteristics of Major Types of Life Insurance Policies"):

• Death benefits: level or decreasing
• Cash value: none
• Premiums: increase at each renewal
• Policy loans: not allowed
• Partial withdrawals: not allowed
• Surrender charges: none

Straight Life

The premiums for a straight lifeForm of whole life insurance where premiums are paid in equal periodic amounts over the life of the insured. policy are paid in equal periodic amounts over the life of the insured. The rate is based on the assumption that the insured will live to an advanced age (such as age ninety or 100). In effect, the insured is buying the policy on an installment basis and the installments are spread over the balance of the lifetime, as explained earlier in our discussion of the level premium concept. This provides the lowest possible level outlay for permanent protection.

As shown in Figure 19.3 "Proportion of Protection and Cash Value in Ordinary Life Contract (Issued to a Male Age Twenty-Five)", the level premium policy consists of a protection element and a cash value element. The cash value builds over time, and eventually, when the insured is ninety or one hundred, the cash value will equal the face value of the policy. If the insured is still alive at this advanced age, the insurer will pay the death benefit as if death occurred. By this time, no real insurance element exists. The options available with regard to this value are discussed later in this chapter. A basic straight life policy typically has a face amount (death benefit) that remains level over the lifetime. The pattern can change, however, by using dividends to buy additional amounts of insurance or by purchasing a cost-of-living adjustment rider.

Limited-Payment Life

Like straight life, limited-payment lifeForm of whole life insurance that offers lifetime protection but limits premium payments to a specified period of years or to a specified age; after premiums have been paid during the specified period, the policy remains in force for the balance of life without further premium payment. offers lifetime protection but limits premium payments to a specified period of years or to a specified age. After premiums have been paid during the specified period, the policy remains in force for the balance of the insured’s life without further premium payment. The policy is “paid up.” A twenty-pay life insurance policy becomes paid up after premiums have been paid for twenty years, a life-paid-up-at-sixty-five becomes paid up at age sixty-five, and so on (see Figure 19.4 "Protection and Cash Value Elements for Single-Premium and Installment Forms of Cash Value Life Insurance"). The shorter premium payment period appeals to some buyers. For example, a life-paid-up-at-sixty-five policy ends premiums around the time many people expect to begin living on retirement pay. If the insured dies before the end of the premium-paying period, premium payments stop and the face amount is paid. These policies are mainly sold as business insurance where there is a need to pay fully for a policy by a certain date, such as the time an employee will retire.

Single-Premium Life

Whole life insurance may be bought for a single premium—the ultimate in limited payment. Mathematically, the single premiumForm of life insurance where the only premium paid is an amount equal to the present value of future benefits, with discounts both for investment earnings and mortality. is the present value of future benefits, with discounts both for investment earnings and mortality. Cash and loan values are high compared with policies bought on the installment plan (see Figure 19.4 "Protection and Cash Value Elements for Single-Premium and Installment Forms of Cash Value Life Insurance"). Single-premium life insurance is bought almost exclusively for its investment features; protection is viewed as a secondary benefit of the transaction.

Investment Aspects

The typical buyer of life insurance, however, does not expect to pay income taxes on proceeds from his or her policy. Instead, the expectation is for the policy to mature eventually as a death claim. At that point, all proceeds (protection plus cash value) of life insurance death claims are exempt from income taxes under Section 101(a)(1). In practice, most policies terminate by being lapsed or surrendered prior to death as needs for life insurance change.

Life insurers offer participation in portfolios of moderate-yield investments, such as high-grade industrial bonds, mortgages, real estate, and common stock, in which cash values are invested with potentially no income tax on the realized investment returns. Part of each premium, for all types of cash value life insurance, is used to make payments on the protection element of the contract, but the protection element also has an expected return. This return is equal to the probability of death multiplied by the amount of protection. Thus, the need to pay for protection in order to gain access to the cash value element of a single-premium or other investment-oriented plan should not be viewed as a consumer disadvantage if there is a need for additional life insurance protection. The participation (dividend) feature of a policy has a major effect on its cost and worth.

Participation Feature

Mutual life insurers have always sold their term and cash value life products on a participation basis. Stock life companies have also made limited use of participating policies. Participating whole life contracts pay dividendsPaid by participating whole life contracts to insureds for the purpose of refunding higher-than-necessary premiums and sharing company profits with policyowners. for the purpose of refunding higher-than-necessary premiums and sharing company profits with policyowners. Thus, as investment returns escalate above previous expectations, or as mortality rates decline, the policyowners share in the success of the insurer.

DividendsPaid by participating whole life contracts to insureds for the purpose of refunding higher-than-necessary premiums and sharing company profits with policyowners. allow the sharing of current profits from investments, mortality assumptions, expense estimates, and lapse experience with the policyholder. Investment returns usually have more influence on the size of dividends than do the other factors. The fact that insurer investment portfolios tend to have many medium- and long-term bonds and mortgages that do not turn over quickly creates a substantial lag, however, between the insurer’s realization of higher yields on new investments and the effect of those higher yields on average portfolio returns that affect dividends.

Participating whole life insurance continues to be a major product line for mutual insurers. Sales illustrations are used by agents in presenting the product to the consumer. For products with the participation feature, dividends projected for long periods into the future are a significant part of the sales illustration. Generally, the illustrations are based on the current experience of the insurer with respect to its investment returns, mortality experience, expenses, and lapse rates.

Summary: Features of Whole Life

In summary, in whole life we see the following features (see also Table 19.1 "Characteristics of Major Types of Life Insurance Policies"):

• Death benefits: fixed level
• Cash value: guaranteed amounts
• Premiums: fixed level
• Policy loans: allowed
• Partial withdrawals: not allowed
• Surrender charges: none

Separation of Elements

Traditional cash value life insurance products do not clearly show the separate effect of their mortality, investment, and expense components. The distinguishing characteristic of universal life contracts is a clear separation of these three elements. This is called unbundlingFeature of universal life that clearly shows the separate effect of mortality, investment, and expense components.. The separation is reported at least annually, by a disclosure statement. The disclosure statementIn universal life, annually reporting of the gross rate of investment return credited to the account, the charge for death protection, expense charges, and the resulting changes in accumulation value and in cash value. shows the following:

• The gross rate of investment return credited to the accountThe advertised rate of return credited to the account is likely to be higher than the true rate of return being earned on the cash value element of the contract. This issue was discussed at length in Chapter 9 "Fundamental Doctrines Affecting Insurance Contracts" regarding vanishing premiums and market conduct.
• The charge for death protection
• Expense charges
• The resulting changes in accumulation value and in cash value

This transparency permits seeing how the policy operates internally, after the fact.

The insurer maintains separate accounting for each policyowner. The account has three income items:

• New premiums paid
• Guaranteed interest credited
• Excess interest credited

The cash outflow items, from a consumer perspective, consist of the following:

• A mortality charge for death protection
• Administrative and marketing expenses
• Withdrawals or loans

The difference between cash income and outflow in universal life becomes a new contribution to (or deduction from) the accumulation valueThe value of the annuity contract during the accumulation period; consists of premiums plus investment earnings minus expenses. account. Visualize this as the level of liquid in an open container where the three income items flow in at the top and the outflow items are extracted through a spigot at the bottom. Accounting usually occurs on a monthly basis, followed by annual disclosure of the monthly cash flows. The steps in the periodic flow of funds for a universal life policy are shown in Figure 19.5 "Flow of Funds for Universal Life Insurance". The first premium is at least a minimum amount specified by the insurer; subsequent premiums are flexible in amount, even zero if the cash value is large enough to cover the current cost of death protection and any applicable expense charges.

Administrative and marketing expense charges are subtracted each period. Some policies do not make explicit deductions. Instead, they recover their expenses by lowering investment credits or increasing mortality charges (limited by guaranteed maximums). Another periodic deduction is for mortality. The policyowner decides whether withdrawals (that is, partial surrenders of cash values) or policy loans are made. They cannot exceed the current cash value. If the entire cash value is withdrawn, the contract terminates. Withdrawals and loans reduce the death benefit as well as the cash value.

After deductions at the beginning of each accounting period for expenses, mortality, and withdrawals, the accumulation value is increased periodically by the percentage that reflects the insurer’s current investment experience (subject to a guaranteed minimum rate) for the portfolio underlying universal life policies.

The difference between the accumulation value and what can be withdrawn in cash (the cash value) at any point in time is determined by surrender expenses. Surrender expenses and other terms will become clearer as aspects of universal life are discussed in more detail in the next chapter sections.

Death Benefit Options

Figure 19.6 "Two Universal Death Benefit Options" shows two death benefit options that are typically available. Type A keeps a level death benefit by making dollar-for-dollar changes in the amount of protection as the investment (cash value account) increases or decreases. This option is expected to produce a pattern of cash values and protection like that of a traditional, ordinary life contract. When a traditional, straight life contract is issued, the policy stipulates exactly what the pattern of cash values will be and guarantees them. In universal life contracts, there are illustrations of cash values for thirty years or so, assuming the following:

• A specified level of premium payments
• A guaranteed minimum investment return
• Guaranteed maximum mortality rates

Another column of this type of illustration shows values based on current investment and mortality experience. Company illustration practices also usually provide a column of accumulation and cash values based on an intermediate investment return (that is, a return between the guaranteed and current rates).

The type B option is intended to produce an increasing death benefit. The exact amount of increase depends on future nonguaranteed changes in cash value, as described in the discussion of type A policies. The type B alternative is analogous to buying a yearly, renewable level term insurance contract and creating a separate investment account.

With either type, the policyowner may use the contract’s flexibility to change the amount of protection as the needs for insurance change. Like traditional life insurance contracts, additional amounts of protection require evidence of insurability, including good health, to protect the insurer against adverse selection. Decreases in protection are made without evidence of insurability. The insurer simply acknowledges the request for a different death benefit by sending notification of the change. The contract will specify a minimum amount of protection to comply with federal tax guidelines. These guidelines must be met to shelter the contract’s investment earnings (commonly called inside interest buildup) from income taxes.

Cost-of-living adjustment (COLA) riders and options to purchase additional insurance are available from most insurers, as you will see at end of this chapter. COLA ridersIncrease the death benefit of universal life annually, consistent with the previous year’s increase in the consumer price index. increase the death benefit annually, consistent with the previous year’s increase in the consumer price index (CPI). Thus, if inflation is 3 percent, a $100,000 type A policy reflects a $103,000 death benefit in the second year. Of course, future mortality charges will reflect the higher amount at risk to the insurer, resulting in higher costs of death protection and lower cash values, unless premiums or investment returns increase concomitantly. Options to purchase additional insurance give the contractual right to purchase stipulated amounts of insurance at specified future ages (generally limited to age forty) and events (e.g., the birth of a child) without evidence of insurability.

Premium Payments

Most universal policies require a minimum premium in the first policy year. In subsequent years, the amount paid is the policyowner’s decision, subject to minimums and maximums set by insurers and influenced by Internal Revenue Service (IRS) rules.

Mortality Charges

Almost all universal life insurance policies specify that mortality charges be levied monthly. The charge for a particular month is determined by multiplying the current mortality rate by the current amount of protection (net amount at risk to the insurer). The current mortality rateIn universal life, can be any amount determined periodically by the insurer as long as the charge does not exceed the guaranteed maximum mortality rate specified in the contract. can be any amount determined periodically by the insurer as long as the charge does not exceed the guaranteed maximum mortality rate specified in the contract. Maximum mortality rates typically are those in the conservative 1980 CSO Mortality Table. Updated mortality tables were adopted in 2006 based on the 2001 CSO Mortality Table, as discussed in “New Mortality Tables” of Chapter 17 "Life Cycle Financial Risks".

The current practice among most insurers is to set current mortality rates below the specified maximums. Mortality charges vary widely among insurers and may change after a policy is issued. Consumers should not, however, choose an insurer solely based on a low mortality charge. Expense charges and investment returns also factor into any determination of a policy’s price. It is also unwise to choose a policy solely on the basis of low expenses or high advertised gross investment returns.

Expense Charges

Insurers levy expense charges to help cover their costs of marketing and administering the policies. The charges can be grouped into front-end expensesIn universal life, expenses applied at the beginning of each month or year consisting of some combination of (1) a percentage of new premiums paid, (2) a small flat dollar amount per month or year, and (3) a larger flat dollar amount in the first policy year. and surrender expensesIn universal life, marketing and administrative expenses applied when policies are terminated. (back-end expenses). Front-end expenses are applied at the beginning of each month or year. They consist of some combination of: (1) a percentage of new premiums paid (e.g., 5 percent, with 2 percent covering premium taxes paid by the insurer to the state); (2) a small flat dollar amount per month or year (e.g., $1.50 per month), and (3) a larger flat dollar amount in the first policy year (e.g., $50). Universal life policies began with high front-end expenses, but the trend has been toward much lower or no front-end expenses due to competition among companies. Those that levy front-end expenses tend to use only a percentage of premium load in both first and renewal policy years. Policies with large front-end loads seldom levy surrender expenses.

As most early issuers of universal policies lowered their front-end charges, they added surrender charges. Whereas front-end expenses reduce values for all insureds, surrender expenses transfer their negative impact to policyowners who terminate their policies. Surrender charges help the insurer recover its heavy front-end underwriting expenses and sales commissions. Questions exist about whether or not they create equity between short-term and persisting policyholders. A few insurers issue universal policies with neither front-end nor surrender charges. These insurers, of course, still incur operating expenses. Some lower operating expenses by distributing their products directly to consumers or through financial planners who charge separate fees to clients. These no-load products still incur marketing expenses for the insurers that must promote (advertise) their products through direct mail, television, and other channels. They plan to recover expenses and make a profit by margins on actual mortality charges (current charges greater than company death claim experience) and margins on investment returns (crediting current interest rates below what the company is earning on its investment portfolio). Thus, even no-load contracts have hidden expense loads. Expense charges of all types, like current mortality rates, vary widely among insurers. Advertised investment returns are likely to vary in a narrower range.

Investment Returns

Insurers reserve the right to change the current rate of return periodically. Some guarantee a new rate for a year; others commit to the new rate only for a month or a quarter.

The indexed investment strategyTies the rate of return on cash values in life insurance to a published index, such as rates on ninety-day U.S. Treasury bills or Moody’s Bond Index. used by some insurers ties the rate of return on cash values to a published index, such as rates on 90-day U.S. Treasury bills or Moody’s Bond Index, rather than leaving it to the insurer’s discretion and its actual investment portfolio returns. This approach also provides a guarantee between 4 and 5 percent.

Some insurers use a new money rate for universal contracts. As explained earlier, the new money rateIn life insurance, credits the cash value account with the return an insurer earns on its latest new investments. approach credits the account with the return an insurer earns on its latest new investments. The practice dictates investment of universal life funds in assets with relatively short maturities in order to match assets with liabilities. When short-term rates are relatively high, such as in the early 1980s, the new money approach produces attractive returns. When short-term returns drop, as they did after the mid-1980s, the approach is not attractive, as noted earlier.

Summary: Features of Universal Life

• In summary, in universal life, we see the following features (see also Table 19.1 "Characteristics of Major Types of Life Insurance Policies"):
• Death benefits: level or increasing
• Cash value: guaranteed minimum cash value plus additional interest when rates are higher than guaranteed
• Premiums: flexible
• Policy loans: yes, but the interest credited to the account is reduced
• Partial withdrawals: allowed
• Surrender charges: yes

How It Works

The Model Variable Life Insurance Regulation, produced by the National Association of Insurance Commissioners, sets guidelines that help establish the form of the product. Certain basic characteristics can be identified.

Variable life is, in essence, a whole life product that provides variable amounts of benefit for the entire life. It requires a level premium; therefore, the out-of-pocket contributions do not change with changes in the cost of living. This limits the extent to which death benefits can increase over time because no new amounts of insurance can be financed by defining the premium in constant dollars. All increases in death benefits must come from favorable investment performance.

Contracts specify a minimum death benefit, called the face amount. In one design, this minimum stays level during the life of the contract. Another design uses increasing term insurance to provide automatic increases of 3 percent per year for fourteen years, at which point the minimum face amount becomes level at 150 percent of its original face value. Assuming continuation of premium payments, the face amount can never go below the guaranteed minimum.

Each separate account is, in essence, a different mutual fund. For example, one contract offers five investment accounts: (1) guaranteed interest, (2) money market, (3) a balance of bonds and stocks, (4) conservative common stock, and (5) aggressive common stock. The policyowner could allocate all net premiums (new premiums minus expense and mortality charges) to one account or divide them among any two or more accounts. Currently, approximately 75 percent of separate account assets are in common stocks. Some policies limit the number of changes among the available accounts. For example, some contracts set a limit of four changes per year. Administrative charges may accompany switches among accounts, especially when one exceeds the limit. Because the changes are made inside a life insurance product where investment gains are not subject to income taxes (unless the contract is surrendered), gains at the time of transfer among accounts are not taxable.

It is assumed that investments in the underlying separate accounts will earn a modest compound return, such as 4 percent. This assumed rate of returnIn variable life insurance, generally is a rate necessary to maintain the level of cash values found in a traditional fixed-dollar straight life contract. is generally a rate necessary to maintain the level of cash values found in a traditional fixed-dollar straight life contract. Then, if actual investment returns exceed the assumed rate, (1) cash values increase more than assumed, and (2) these increases are used partly to purchase additional death benefits.

The additional death benefits are usually in the form of term insurance. The amount of term insurance can change (upward or downward) daily, monthly, or yearly, depending on the provisions of the contract. The total death benefit, at a point in time, becomes the amount of traditional straight life insurance that would be supported by a reserve equal to the policy’s current cash value.

If separate account values fall below the assumed rate, (1) the cash value falls, and (2) one-year term elements of death protection are automatically surrendered. The net result is a new death benefit that corresponds to the amount of straight life that could be supported by the new cash value, subject to the minimum death benefit. These variable aspects are what give the contract its name. The nature of variable life insurance, with one-year term additions, is depicted in Figure 19.7 "Hypothetical Values for a Variable Life Insurance Contract".

Policy loans and contract surrenders can be handled by transferring funds out of the separate account. Loans are typically limited to 90 percent of the cash value at the time of the latest loan. Surrenders are equal to the entire cash value minus any applicable surrender charge.

Some variable contracts are issued on a participating basis. Because investment experience is reflected directly in cash values, dividends reflect only unanticipated experience with respect to mortality and operating expenses.

Variable life insurance is technically a security as well as insurance. Therefore, it is regulated by the Securities and Exchange Commission (SEC)—which enforces the Investment Company Act of 1940, the Securities Act of 1933, and the Securities Exchange Act of 1934—as well as by state insurance departments. The SEC requires that an applicant be given a prospectusStatement issued by insurers as required by the SEC explaining the risks of variable life and illustrates how the death benefit and cash values would perform if future investment experience results in returns of 0, 4, 6, 8, 10, and 12 percent. before being asked to sign an application for variable life. The prospectus explains the risks and usually illustrates how the death benefit and cash values would perform if future investment experience results in returns of 0, 4, 6, 8, 10, and 12 percent. Returns also can be illustrated based on historical experience of the Standard and Poor’s 500 Stock Price Index. Because the product is a security, it can be sold only by agents who register with and pass an investments examination given by the National Association of Security Dealers.

A midrange assumption (e.g., 4 percent) produces a contract that performs exactly like traditional straight life insurance. The 0 percent return would produce the minimum face amount; the cash value would be below normal for a period and go to zero at an advanced age. Because cash values cannot be negative, the policy would continue from the time the cash values reach zero until the death without cash values. At death, the minimum face amount would be paid. The 8 and 12 percent returns would produce cash values that grow much faster than those normal for an ordinary life policy; the total death benefit would continue to grow above the minimum face amount. These examples all assume continuous payment of the fixed annual premium.

Summary: Features of Variable Life

The cash value in a variable life policy fluctuates with the market value of one or more separate accounts. Death benefits, subject to a minimum face amount, vary up or down as the cash value changes. Success in achieving the objective of maintaining a death benefit that keeps pace with inflation depends on the validity of the theory that certain investments are good inflation hedges. All investment risks are borne by the policyowner rather than by the insurer. The issuer of a variable life policy assumes only mortality and expense risks.

In summary, in variable life we see the following features (see also Table 19.1 "Characteristics of Major Types of Life Insurance Policies"):

• Death benefits: guaranteed minimum plus increases from investments
• Cash value: minimum not guaranteed; depends on investment performance
• Premiums: fixed level
• Policy loans: yes
• Partial withdrawals: not allowed
• Surrender charges: yes

Summary: Features of Variable Universal Life

In summary, in variable universal life, we see the following features:

• Death benefits: guaranteed minimum plus increases from investments
• Cash value: minimum not guaranteed; depends on investment performance
• Premiums: flexible
• Policy loans: allowed
• Partial withdrawals: allowed
• Surrender charges: yes

Summary: Features of Current Assumption Life

In summary, in current assumption life, we see the following features:

• Death benefits: fixed
• Cash value: guaranteed minimum plus excess interest (like universal life)
• Premiums: vary according to experience, but no higher than a set maximum
• Policy loans: yes
• Partial withdrawals: allowed
• Surrender charges: yes