Many policyowners do not know how their premium payments are applied by their life insurance company. For purposes of this example, we are assuming that the policy in question is a universal life insurance policy. This is because these types of insurance policies are transparent, and the policyowner is able to see how the policy operates internally as shown on an illustration or annual report provided by their agent or insurer.

A key element of universal life insurance policies is that their accumulated value and death benefit amounts are shown separately, and they are calculated separately. The accumulated value changes each year based upon premiums paid, interest credited on the current accumulated value, and expenses and mortality charges imposed by the insurer. If the accumulated value of a policy is greater than the expense and mortality charges for the current period, it’s possible that no premium would need to be paid by the policy owner to keep the policy in place for another year. Furthermore, for many universal life insurance policies, any accumulated value will not be paid to the beneficiary of the policy after the death of the insured, and such accumulated value will be kept by the insurance company.

When Living Wealth Advisors reviews your life insurance policy, we analyze the policy to determine the optimal level of premium payments the policy owner can make while maintaining the desired amount of death benefit. Potential options include a level premium payment until the insured reaches a certain age, level premium payments for a certain number of years, and the minimum premium payment each year to keep the policy in force.