Universal Life Insurance Policy

Universal Life Insurance Policy
UL plans are unbundled and they are much easier to understand and explain than traditional bundle permanent universal life insurance products. The various components of the universal life insurance policy such as insurance charges and earned  interest can each be isolated and quantified. So that universal life insurance policy is much easier to understand.
Here we are talking about two types of universal life insurance policies one of them is Tax Exempt and another one is Non Exempt.
In order for the Universal life insurance policy to be taxed exempt, it must pass the following tests

1. The exempt test
This test determines whether a policy is exempted or not. An exempt policy provides primary insurance protection.The test is a comparison between
accumulating fund or cash values of the actual policy to that of a standard test policy. It is a hypothetical 20-pay policy with endowment at age of 85.The
cash value of the actual policy is less than or equal to, the cash value of the exempt test policy on each policy anniversary.If the exempt test fails at
any anniversary the exempt policy becomes non-exempt. Any gains that have been accumulated in the policy at the time of deemed disposition will be taxable
to the policy owner in the year in which this disposition occurs. Income earned in the policy after the deemed disposition will be reported for taxation on
an annual accrual basis.

2. Maximum tax acturial reserve.
In this amount insurer can detuct from the all expenses, such as insurance premium, adminstration charges. For the UL policy remain exempt:
a) Its values cannot exceed the MTAR line.
b) The face amount or death benefit of the policy cannot grow more than 8% each year.
c) The cash value of the policy at the tenth anniversary and each subsequent policy anniversary cannot be more than 250% of the cash value.

Insurance, Universal Life Insurance