Interest-Sensitive, Universal, Index-Whole Life

What is interest-sensitive (current assumption) whole life?

A form of whole life where cash value growth is tied to current interest rates rather than a single fixed rate. Features a current rate and a guaranteed minimum rate, with premiums adjustable through 'redetermination.'

What is equity-indexed (index) whole life?

Ties cash value growth to a stock market index (e.g., S&P 500) with a guaranteed minimum rate (floor), a participation rate (% of gains credited), and a cap rate (maximum rate credited). Principal is protected from market losses.

What is universal life (UL) insurance?

A permanent policy with flexible premiums and adjustable death benefit. Often called 'unbundled' because mortality charges, expense charges, and cash value are separately disclosed and transparent.

What are the two death benefit options in universal life?

Option A (Option 1) — level death benefit; as cash value grows, the net amount at risk decreases. Option B (Option 2) — increasing death benefit; beneficiary receives face amount PLUS cash value; more expensive.

What is the minimum premium in universal life?

The smallest amount needed to keep the policy in force. As long as cash value covers monthly mortality and expense charges, the policy remains active even with no out-of-pocket premium.

What is the target premium in universal life?

The recommended amount designed to keep the policy in force for its intended duration. Not required, but paying at least the target premium prevents lapse.

What is indexed universal life (IUL)?

Credits interest based on a market index (e.g., S&P 500) subject to a cap and floor (usually 0-1%). Money is not directly invested in the market; the index only determines interest credits.

What is the 'corridor' requirement in universal life?

Under IRC §7702, a life insurance policy must maintain a minimum gap (corridor) between the death benefit and the cash value to qualify as life insurance for tax purposes. If the cash value grows too large relative to the death benefit, the policy may fail the §7702 definition and lose its life insurance tax treatment entirely. Note: This is separate from becoming a Modified Endowment Contract (MEC), which is triggered by failing the §7702A 7-pay test due to overfunding — a different test with different consequences.