Universal life insurance combines elements from term life insurance 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. Deborah is a 45-year-old lawyer who has taken out a universal life insurance policy to protect her two children (ages 16 and 14) in the event of death. Each year, Deborah chooses how much 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 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. Year 1 Year 2 Year 3 $2,508 $2,141 $1,777 Premium (annual contribution) Administrative fee $85 $85 $85 Cost of death benefit $140 $140 $140 Amount added to cash value $ $ $ 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 6th year of her policy, her cost of death benefit has risen substantially. At the same time, she is helping to pay her mother's medical expenses after a major surgery and currently cannot afford to pay her life insurance premium. True or False: Under the terms of a standard universal policy, if Deborah stops paying her premiums, then the administrative fee and cost of death benefit will be deducted from the savings portion of her policy (assuming sufficient cash value accumulation, and the policy will remain active. True Shopping for Life Insurance Becky has determined that a 10-year, $150,000 level term life insurance policy would best suit her needs, she consulted with one insurance broker, Hans Honestman, who quoted him a monthly rate of $300. she remembers learning in her personal finance course that premiums for similar policies, so she plans to Before doing anything else, she decides to consult her aunt Sondra, a banker in a trust department, about the features of her life insurance policy. She tells Becky that she has a $100,000 whole life policy. Which of the following are appropriate next steps for Becky? Check all that apply. Find out whether Hans Honestman has a professional designation, such as Chartered Life Underwriter (CLU). Compare quotes for 10-year, $150,000 level term policies online. Assume that a licensed broker will serve a client's best interests. Find out the monthly premium Sondra pays on her policy to compare it with the premium quoted by the broker
