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The target premium is a recommended amount that

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Thetarget premiumis a recommended amount that should be paid on a policy inorder to cover the cost of insurance protection and to keep the policy in forcethroughout its lifetime.
7/29/2020The Exam Simulator for the Web!9/21Know This!If an insured skips a premium payment on a universal lifepolicy, the missing premium may be deducted from the policy’s cash value.The policy will NOT lapse.A universal life policy has two components: aninsurance componentand acashaccount. The insurance component of a universal life policy is alwaysannuallyrenewable term insurance.Universal life policies allow thepartialwithdrawal(partialsurrender) of the policycash value. However, there may be a charge for each withdrawal and there areusually limits as to how much and how often a withdrawal may be made. Duringthe withdrawal, the interest earned on the withdrawn cash value may be subject totaxation, depending upon the plan. The death benefit will be reduced by theamount of any partial surrender. Note, however, that a partial surrender from auniversal life policy is not the same as a policy loan.Death Benefit OptionsUniversal life offers one of two death benefit options to the policyowner.Option Ais thelevel death benefitoption, andOption Bis theincreasing death benefitoption.UnderOption A (Level Death Benefit option), the death benefit remains level whilethe cash value gradually increases, thereby lowering thepure insurancewith theinsurer in the later years. Notice that the pure insurance is actually decreasing astime passes, lowering the expenses, and allowing for greater cash value in theolder years. The reason that the illustration shows an increase in the death benefitat a later point in time is so that the policy will comply with the "statutorydefinition of life insurance" that was established by the IRS and applies to all lifeinsurance contracts issued after December 31, 1984. According to this definition,there must be a specified "corridor" or gap maintained between the cash valueand the death benefit in a life insurance policy. The percentages that apply to thecorridor are established in a table published by the IRS and vary as to the age ofthe insured and the amount of coverage. If this corridor is not maintained, thepolicy is no longer defined as life insurance for tax purposes and consequentlyloses most of the tax advantages that have been associated with life insurance.
7/29/2020The Exam Simulator for the Web!10/21UnderOption B (Increasing Death Benefit option), the death benefit includes theannual increase in cash value so that the death benefit gradually increases eachyear by the amount that the cash value increases. At any point in time, the totaldeath benefit will always be equal to the face amount of the policy plus thecurrent amount of cash value. Since thepure insurancewith the insurer remainslevel for life, the expenses of this option are much greater than those for Option A,

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