What is Universal Life (UL) insurance?
A type of permanent insurance that combines lifetime coverage with flexible, tax-advantaged investing.
How does UL differ from whole life?
UL unbundles costs (COI, expenses, investments) and gives policyholders control over premiums, coverage, and investments. Whole life bundles costs and decisions are made by the insurer.
Why is UL considered flexible?
Policyholders can adjust premiums, face amount, insured lives, COI structure, and investment options over time.
What reform on UL insurance took effect on January 1, 2017?
New tax rules for UL policies. Policies issued before 2017 have ‘grandfathered’ tax rights that may be lost if changed.
What does ‘unbundling’ mean in UL?
COI, expenses, and investments are separated and visible to the policyholder.
What is the Cost of Insurance (COI) in a UL policy?
The insurer’s charge to cover mortality risk, deducted from the investment account.
What are the two COI pricing options in UL?
- Yearly Renewable Term (YRT)
- Level Cost of Insurance (LCOI)
Difference between YRT and LCOI?
YRT = cheaper early, cost rises steeply later. LCOI = higher early, level for life, helps preserve account value in later years.
What is the Net Amount at Risk (NAAR)?
Death benefit minus account value (or cumulative COI) → the portion the insurer is at risk to pay.
Can COI be adjusted?
Yes. Some policies allow increases, either open-ended or restricted (e.g., capped at 25–100% of original schedule).
What are minimum and maximum premiums in UL?
Minimum keeps the policy in force to age 100; maximum is set by tax-exempt rules (exemption test).
What is a minimally funded UL policy?
Only the minimum premium is paid → policy stays in force but cash value doesn’t grow.
What is a maximum-funded UL policy?
Policyholder pays up to the tax-exempt limit → builds large cash value with tax-sheltered growth.
How does UL handle missed premiums?
No automatic premium loan. Policy continues until account value is insufficient to cover COI/expenses, then lapses after grace period.
Do UL policies charge modal factors?
Usually no; monthly/quarterly payments are just proportional divisions of annual premium.
Can UL coverage be changed?
Yes, face amount can be increased (with insurability proof) or decreased (subject to minimums).
Can UL insure multiple lives?
Yes, on single or joint-life basis (e.g., joint-last-to-die for estate needs).
What are the main UL death benefit options?
- Level death benefit
- Level + account value
- Level + cumulative premiums
- Indexed death benefit (CPI or fixed %)
Which option is least expensive?
Level death benefit.
Which option ensures premiums are refunded?
Level + cumulative premiums.
Which option is best for inflation protection?
Indexed death benefit.
How are UL investments handled?
Net premiums (after COI, expenses, tax) are invested in accounts chosen by the policyholder.
What is the exemption test?
CRA test ensuring policy remains tax-exempt; excess premiums go into a taxable side fund.
How is UL investment growth taxed?
Growth compounds tax-deferred within the account; may never be taxed if included in death benefit.
-
Introduction to Life Insurance17
-
Term Life Insurance44
-
Whole Life & T-10039
-
Universal Life38
-
Riders and Supplementary Benefits35
-
Group Life Insurance47
-
Taxation of Life Insurance & Tax Strategies40
-
Business Life Insurance32
-
Application & Underwriting41
-
Assessing Needs & Situation29
-
Recommending a policy33
-
Ongoing Service26
-
Formulas18
-
Practice Questions22
