May 9, 2008

GROUP UNIVERSAL LIFE INSURANCE : Loans and Withdrawals, Dependent Coverage, Accidental Death and Waiver of Premium

Loans and Withdrawals
Employees are allowed to make loans and withdrawals from their accumulated cash values, but for administrative reasons the frequency of loans and withdrawals may be limited. There are also minimum loan and withdrawal amounts, such as $250 or $500. In addition, an employee is usually required to leave a minimum balance in the cash-value account sufficient to pay mortality and expense charges for some time period, possibly as long as one year. If an option A death benefit is in effect, the amount of the pure insurance is increased by the amount of the loan or withdrawal so that the total death benefit remains the same. With an option B death benefit, the amount of the total death benefit is decreased.

The interest rate charged on policy loans is usually pegged to some index, such as Moody's composite bond yield index. In addition, the interest rate applied to an amount of the cash value equal to the policy loan is reduced. This reduced interest rate may be the guaranteed policy minimum or may also be based on some index; for example, the rate may be 2 percent less than Moody's composite bond yield.

An employee can withdraw his or her entire cash-value accumulation and terminate coverage. Total withdrawals are subject to a surrender charge during early policy years. The charge decreases with policy duration and is usually in addition to any transaction charge that might also be levied.

Dependent Coverage
Most products allow an employee to purchase a rider that provides term insurance coverage on his or her spouse and children. For example, one insurance company allows an employee to elect spousal coverage of $10,000 to $50,000 in $10,000 increments and coverage on children in the amount of either $5,000 or $10,000. Other insurers make varying amounts available.

Some insurance companies allow separate universal life insurance coverage to be elected, but usually only for the spouse. In such cases, the coverage is provided under a separate group insurance certificate rather than a rider.

Accidental Death and Waiver of Premium

A group universal life insurance plan may provide accidental death benefits and a disability waiver of premium. These benefits are not optional for each employee; rather they are part of the coverage only if the employer has elected to include them in the plan. When a waiver of premium is included, all that is waived in case of disability is the portion of the premium necessary to pay the cost of the pure insurance protection for the employee and any dependents.


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