Insurance World

Universal life insurance is just one of several types of life insurance policy available through life companies today. Unlike term life insurance or mortgage (reducing) life insurance, universal life insurance gives your insurance policy a cash-in value, allowing you to withdraw funds accumulated on your universal policy as and when needed.

This flexible approach to life insurance is very popular in the US and offers a real alternative to standard term & mortgage life policies where the policyholder does not normally get to benefit directly from the life insurance funds, unless they are diagnosed as being terminally ill. Universal life insurance also provides policyholders with the ability to accrue interest on their life insurance premiums - something that a standard life insurance policy does not offer.

How universal life insurance works
Universal life insurance works in a similar way to a high interest long-notice deposit account. When an insurance premium payment is sent to the life company the company deposit the funds into an interest account after deducting a nominal expenses charge per deposit. The funds then gain interest, with interest accrued being credited to the account on a monthly basis. Each premium payment made of course increases the fund, while compound interest is earned on the account month upon month. The cost of maintaining the insurance product or products purchased through the universal insurance scheme are also deducted from the universal account on a monthly basis.

Should the insurance policyholder wish to withdraw funds from their universal life policy then they can do so from the cash surrender value of the life policy. Withdrawals are normally controlled / limited to a set number per year. Depending upon the policy provider there may also be caps on the amount of money that the universal life policyholder can withdraw and a stipulation on a minimum amount of funds that should remain in the universal life account.

It should go without saying that withdrawals from a universal life insurance policy will reduce the overall amount of funds available when a lump sum claim is made upon death or terminal illness diagnosis. It is therefore important to manage the universal life account to ensure that there is sufficient coverage for your family and dependants in the event of your death. If you don’t have the time to carefully manage a universal life product then you may end up with little to show for your life insurance premiums if and when a lump sum pay out is triggered.

Alcohol is regarded as an antiseptic or a preservative in some cases, but its effect on life insurance costs can be anything but benign. You will almost certainly be asked for information about your alcohol consumption when you apply for life insurance, and it is likely that NHS guidelines will be consulted to determine whether you within the safe level. If your drinking is deemed to have reached the ‘potentially dangerous’ bracket, the cost of your policy may come as a considerable shock.

Medical practitioners provide information to insurers regarding the health problems caused by excessive drinking, for consideration when premiums are calculated. Many other factors have to be brought into life insurance risk assessment, but with the Drink Aware Trust along with the British Chiropractic Association finding that 66% of the population admit to excessive drinking once a week at least, the statistics have to be taken very seriously.

Don’t want to admit it? Not very surprising really, but it would be foolish to try to keep the information from a potential insurer. Remember that all insurance policies will carry a penalty relating to falsified or withheld information; if the concealed facts are of sufficient significance the policy may be declared invalid.

You may think that your insurers will have no way of knowing whether you were a drinker or not, after your death. Even if they could establish that you did enjoy alcoholic drinks, how could they know whether the extent of your drinking was excessive?

It may or may not depend on how heavily you were drinking and for how long.
There is however no point in deciding that you will cut down in later life to hide the fact. This approach gives rise to several questions. How do you know that you are going to get any ‘later life’ – has some genie of the bottle given you a firm date for your departure? Don’t forget that the sooner you go, the greater the degree to which your family will depend on your insurance.

If you try cutting down, how successful will you be? Perhaps it would be akin to giving up smoking – so easy that you do it many times! But let us assume that like the rest of us, you are the exception to the rule. You will live to a ripe old age, give up drinking when you retire, and no one will be any wiser. Sad to say you may be almost correct, but the chances are that someone will know what you did.

If you are subjected to a post-mortem examination, the evidence will be there, and there are likely to be medical experts who can put a time frame on your drinking. They will be able to say if you were drinking heavily before you took out your life insurance, and if you were and you had failed to declare this fact they will recommend to the insurer that there should be no payout, on the basis of failure to disclose full and relevant facts.

Non disclosure of a relevant fact is anathema to insurance companies, and the opinion of the Association of British Insurers supports this view. Their spokesman has said that inaccuracies in the information supplied on the application form may render the policy invalid in the event of a claim.

If however the information was not disclosed because at the time of taking out the policy the alcohol problem did not exist but has developed since, a payout may be accepted as justifiable. The spokesman said that policies are based on the circumstances at the time that the policy is taken out; subsequent changes are not relevant unless specifically covered i.e. participation in certain dangerous sports may be stated to be unacceptable. If this statement is written into the policy conditions, then it would apply even if the sport was only taken up after the policy was agreed.

Depending on the approach adopted by your insurance company, you are likely to be asked about your weekly consumption of units of alcohol, and the level of your premiums will be adjusted to take account of your answer.

The result of these and other lifestyle questions could affect the amount you pay out in premiums for many years – and presumably you don’t get the alcohol free of charge either.