What is interest sensitive life insurance coverage?
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Asked May 21, 2012
Interest sensitive life insurance is a form of permanent life insurance coverage that combines the benefits of whole life and universal life policies. The policy is sometimes referred to as an "excess interest" or "current assumption" whole life policy. As with most permanent life insurance policies, the policy will remain in effect as long as the premiums are kept up to date and the named insured lives.
Like other whole life policies, the face value, called the death benefit, of the policy remains constant. The cash value of the policy accrues according to market value, except in the case of some companies which offer a guaranteed interest rate independent of markets. The universal life aspects of an interest-sensitive life insurance policy relate to the premiums, which may vary within the limits provided in the policy but will never rise above the stated limits.
The policy owner can borrow against the accrued value of the policy without meeting credit or loan criteria. Similarly, the loan is tax-deferred, and interest-free. In effect, the cash value of the policy is the amount the policy could be closed out at if the policy was immediately canceled. Because the interest is based on the full value of the accumulated cash, the rate of increase will build over time, in direct proportion to the current cash value of the policy.
An interest-sensitive life insurance policy is well suited for a number of applications. Paying off the mortgage and settling other debts is a common use, along with setting up a replacement income for the family or guaranteeing that specific life goal can be met, such as college tuition or a first car for your grandchildren. This type of policy is perfect for an inheritance or to create a trust fund, with the added benefit of the cash value's accessibility to you for as long as you live.
Answered May 21, 2012 by Anonymous