universal life insurance
An unbundled whole life
insurance product in which the mortality, investment, and expense
factors used to calculate premium rates and cash values are
expressed separately in the policy. In a universal life insurance
policy, any applicable expense charges are deducted from the premium
and the remainder of the premium is then credited to the policy's
cash value. Each month the insurer deducts the mortality costs from
the cash value and credits the remainder of the cash value with
interest.
The owner of a universal life policy can
specify the premium amount he or she will pay, as long as this
amount falls within the minimum and maximum specified by the
company. If the renewal premium is insufficient to pay the policy's
mortality and expense charges, the balance is taken from the
policy's cash value. If the premium exceeds the maximum level
specified by the company, then the policy's cash value may grow too
large in proportion to the policy's death benefit and the policy
will be considered an investment contract rather than an insurance
contract. The difference in size that must be maintained between the
cash value and the death benefit is called the corridor.
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