UL PRODUCTS BASICS - Protective Life

[Pages:15]UL PRODUCTS BASICS

PLC.9319.07.13

This presentation contains general educational information about Universal Life products and is not intended to promote any products or services offered by Protective Life Insurance Company.

In General...

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There are two major categories of insurance products, Term and Permanent.

Universal Life insurance and Whole Life insurance are both types of permanent insurance.

Because Universal Life insurance is a variation of Whole life insurance, it helps to begin with an understanding of Whole Life insurance.

Let's review key facets of Whole Life... 3

Traditional whole life plans have fixed, pre-set premiums and values.

Often premiums are level. But, if premiums do change, the timing and amounts of the changes are "scheduled" and spelled-out in the contract.

Cash values usually increase, gradually and predictably, over time.

More about traditional whole life...

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Similar to a "budget plan" for your electric bills--the premiums charged for a level premium whole life plan are an "average" of the insurance and administrative costs over the "lifetime" of the policy.

With a level premium whole life plan-- premiums paid in early years are more than what is needed to provide the coverage at younger ages when death is less likely.

In later years, premiums are less than what is needed to provide the coverage at older ages when death is more likely.

Finally, with traditional whole life...

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Premiums are predetermined, as are the policy values.

Since all facets of the plan are "fixed" at issue, policy values are based on a modest rate of interest.

If the company is able to invest premiums at a higher interest rate when financial markets are rising, policy values on these plans do not benefit.

There are (usually) no opportunities for the whole life policyholder to change premium amounts or influence the cash values or coverage amounts after buying the policy.

As long as the original, fixed premiums are paid when due, the coverage can remain in effect.

Even if the company gains a higher return than originally predicted on premiums invested, the policyholder does not (typically) benefit.

How UL works...

Premiums Interest

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In contrast, UL plans have contract provisions providing flexibility and they are interest sensitive.

Premium Expense Charge

Policy

Value

Surrender Charge

(if applicable)

Cost of Insurance

Planned and unplanned premium payments are possible. The combined premium and interest credits fund the policy value.

Administrative Expenses

How the policy values grow can be influenced by choices the policyholder makes about the premium amounts he/she pays and by the return the company gets on premium investments.

How UL works... 7

Generally, companies pay higher interest on UL plans when premium investment returns are higher and lower interest rates when those returns are lower. That is what is meant by "interest sensitive".

Some newer UL plans have a "lapse protection feature" which, in some ways, makes a UL plan operate more like a fixed premium, whole life plan.

Without such a feature in effect, UL plans stay in force based on having enough policy value each month to pay insurance and administrative expenses.

How UL works...

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Because premiums are flexible with UL plans, a policyholder can choose to pay more premiums in, than are necessary for just the death benefit coverage.

This enables him/her to take advantage of higher interest rate credits -available when financial market investment rates are on the rise.

That is what truly makes UL plans special -- the fact that policy values are interest sensitive. The interest sensitive facet of UL plans can also make them more affordable than traditional whole life plans with comparable death benefits.

The flexibility and interest-sensitive components of UL plans make it important to monitor how the plan is performing using the Annual Report sent around the policy's anniversary date.

In particular this is true when interest rates are consistently lower than originally projected and/or when premiums paid are less than originally projected.

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