A UL insurance option provides more flexibility than whole life insurance. Policyholders can adjust their premiums and death benefits. UL insurance premiums consist of two components: a cost of insurance (COI) amount and a saving component, known as the cash value.
As the name implies, the COI is the minimum amount of a premium payment required to keep the policy active. It consists of several items rolled together into one payment. COI includes the charges for mortality, policy administration, and other directly associated expenses to keeping the policy in force. COI will vary by policy based on the policyholder’s age, insurability, and the insured risk amount.
Collected premiums in excess of the cost of UL insurance accumulate within the cash value portion of the policy. Over time the cost of insurance will increase as the insured ages. However, if sufficient, the accumulated cash value will cover the increases in the COI.
