Policy LoanThis section provides information on using policy values* in the following transactions:
Policy Loan
Dividend Withdrawal
Dividend Option Change
Partial Withdrawal
Surrender
Extended Insurance
Paid-Up Insurance
Premium Deposit Fund
Premium Discount Plan
(* Recent changes in tax laws may result in some or all of the value used being reported to the IRS. See the Tax and Technical section for more information.)
The availability of policy proceeds for various uses presents valuable options to the policyowner. In order to provide prompt service regarding use of policy funds, proper authorization should be obtained at the time of the request. Authorization other than the policyowner's is needed in the following instances:
If the policy is owned by a corporation, two officer's signatures and titles are required unless otherwise noted.
If the policy is owned by a pension or profit sharing trust, the trustee's signature is required.
If the policy is assigned, the assignee's and policyowner's signatures are needed.
If there is an irrevocable beneficiary, the beneficiary's and policyowner's signatures are required.
Withdrawal Form CL 70.144
Email Notification with message: POLICY LOAN
1. Obtain all needed signatures.
2. Clearly identify amount needed.
3. Specifically list policies and amounts in the order they are to be used if loan values from other policies are to be used to pay premiums on a policy.
4. Minimum deposit figures can be obtained from the Client Assistance Service Center if policy values are to be used to pay premiums of the same policy.
5. Direct billing can be established on a monthly, quarterly, semiannual, or annual basis for loan repayment. (There is a minimum of $25.00 per billing.)
6. There are no interest paid receipts sent to the policyowner to retain. Therefore, the best record for the policyowner is a clearly marked personal check.
1. Obtain all needed signatures.
2. Clearly identify amount needed.
3. Specifically list policies and amounts in the order they are to be used, if loan values from other policies are to be used to pay premiums on a policy.
4. There are no interest paid receipts sent to the policyowner to retain. Therefore, the best record for the policyowner is a clearly marked personal check.
5. A loan payment on a universal life policy can be billed on the same mode as the premium payment, or can be on a different mode.
1. Withdrawal Form CL 70.144
2. Policy Change form CL 45.99 (pages 1-5) and written request on form CL 70.144 are needed if accumulations are to be used to purchase additions, and the amount at risk increased by more than $1,000.
3. Policy Change form CL 45.98 and written request on form CL 70.144 are needed if accumulations are to be used to purchase additions when the amount at risk did not increase more than $1,000.
4. A dividend withdrawal on an Extraordinary Life policy will reduce the amount of insurance protection.
Email Notification with message: DIVIDEND VALUE RELEASED
1. Obtain all needed signatures.
2. Dividends have been borrowed if the loan balance on the Email Notification status exceeds the cash value.
3. Amount and application of dividend to be withdrawn should be clearly indicated.
4. The amount of additions to be purchased from accumulations can be obtained from the Home Office. The Email Notification from this transaction reflects both the dividend withdrawal and amount of additions purchased.
1. Client Services Form CL 70.57.
2. Both Policy Change Form CL 45.99 (pages 1-5) and data page of policy are needed if changing option to One Year Term.
3. Extraordinary Life policy must be returned to the Home Office if changing dividend option. Dividend option changes reduce the death benefit.
Email Notification with message: DIVIDEND OPTION CHANGE
1. Applies to future dividends only.
2. Premium Reduction option not available with Pre-Authorized Transfer plan, Salary Deduction, or Government Allotment.
3. The amount of additions to be purchased from accumulations can be obtained from the Home Office. The Email Notification from this transaction reflects both the dividend withdrawal and the amount of additions purchased.
4. The following items should be considered when changing options to One Year Term:
a. Loan reduction option not available with One Year Term for balance of dividend.
b. Policy must have at least $10,000 face amount for One Year Term Option.
c. No insurance is available until after the first policy anniversary following a change of option to One Year Term.
d. When changing option to One Year Term, a selection must be made as to how the balance of dividends is to be applied.
Premiums may be paid automatically each year making special premium arrangements to use dividend value. To establish this special premium arrangement, you should contact the Client Service Center so that the proper forms may be prepared, or the Request for Dividend/PDF/PDP Transfer form CL 70.239 may be ordered from the Supply Department. A letter of acknowledgment will be sent to the policyowner each year when the premium has been paid.
Withdrawal Form CL 70.144.
Email Notification with message: PARTIAL SURRENDER
1. Amount requested must be at least $500.00.
2. Policy must have been in force for more than one year.
3. Partial withdrawals may result in a reduction of coverage.
4. There are partial withdrawal charges on back-end load policies.
5. The policy is subject to a $50.00 charge for second and each subsequent withdrawal per policy year.
6. Obtain needed signatures.
7. Withdrawal amount or the check amount desired must be included on form CL 70.144.
8. Be sure Tax Identification Number is provided.
9. Be sure Nonperiodic Withholding Election (FIT) portion of form is completed.
1. Withdrawal Form CL 70.144 or 1035 Intent Statement Form CL 70.388.
Email Notification with message: SURRENDER
1. Cash values and premium refunds are figured as of the date items reach the Home Office.
2. Obtain needed signatures.
3. Specific instructions are needed if surrender proceeds are to be transferred to other policies.
4. Be sure Tax Identification Number is provided.
5. Be sure Nonperiodic Withholding Election (FIT) portion of form is completed.
1. Cash values and premium refunds are figured as of the date items reach the Home Office.
2. Obtain needed signatures.
3. Specific instructions are needed if surrender proceeds are to be transferred to other policies.
4. Be sure Tax Identification Number is provided.
5. Be sure Nonperiodic Withholding Election (FIT) portion of form is completed.
Client Services Form CL 70.57
Email Notification with message: NFO-EXT TERM INS
1. Will be made effective on the date to which premiums are paid.
2. Obtain needed signatures.
1. Client Services Form CL 70.57
2. Cash settlement if policy is to be paid up for full amount and policy values are insufficient to do so.
Email Notification with message: NFO-REDUCED PAID UP
1. Dividends may be used to place the policy on the paid-up basis.
2. Obtain needed signatures.
3. Will be made effective on the date to which premiums are paid.
4. Quote of cash settlement needed to pay up policy can be obtained from the Home Office.
Request For Dividend/PDF/PDP Transfer Form CL 70.239.
1. Premium Deposit Fund receipt is sent to the insured when initial deposit is received.
2. Email Notification with message: BILLING CHANGE (only created when Premium Deposit Fund is first established).
1. There is a $10 minimum for any deposit.
2. A Bank Authorization form CL 35.47 and a payment from the account from which drafts will be made are needed if deposits are to be made through the Pre-Authorized Transfer plan, unless already established.
3. Automatic withdrawal of funds to pay premiums may be established by written request.
4. If automatic withdrawals are established, and the balance is insufficient to pay the premium, a premium notice for the net amount will be sent to the insured.
5. Funds may be used to pay premiums on other policies if a written request is received from the policyowner.
6. When automatic withdrawals are not established, and a premium payment is not received by the end of the Late Remittance Offer, the premium will be paid by the Premium Deposit Fund, if there is not sufficient value to pay by Automatic Premium Loan. If the balance is insufficient, the premium mode will be changed to one for which the balance is sufficient.
Request For Dividend/PDF/PDP Transfer Form CL 70.239.
A Premium Discount Plan receipt reflecting the date premiums are paid to in advance.
1. For deposits on the policy anniversary, refer to the Premium Discount Table. A deposit must be received within 20 days of the anniversary date to be considered on the anniversary.
2. For deposits off-anniversary, consult the Client Assistance Service Center for figures.
3. Request should indicate number of premiums to be prepaid.
4. A Premium Discount Plan can only be established on an annual premium basis.
5. A premium discount plan cannot be established on a term policy or a policy with a term rider.
6. A minimum initial deposit of $100 is required.
7. The maximum amount allowable is equal to 20 years of prepaid premiums up to $50,000.
8. Any withdrawal from the Fund will involve a penalty of a loss of some interest earned.
The preferred interest rate on policy loans can do all of the following:
Increase the interest rate credited to the non-loaned account value (since loaned amounts are included when determining the level of banding);
Increase the interest rate credited to the loaned portion of the account value (because this interest rate is also banded);
Show better overall values than before on illustrations with policy loans due to higher banded interest rates.
Preferred interest rate policy loans are available on the UL600, UL700, UL800, UL900 and UL2000 series. The preferred interest rates will also be made available retroactively to policy loans on all inforce policies in these series. When a policy with a loan reaches its 10th anniversary, the preferred interest rate loans will automatically take effect.
The total cost, including both direct and indirect costs, must be considered when borrowing cash values from a policy. The direct cost of a policy loan is the difference between the interest rate charged on the policy loan and the interest rate credited to the loaned account value.
However, there is also an indirect cost, since the death benefit is decreased by the policy loan and the cash values grow more slowly than those on a non-loaned contract. Even if the policyowner is paying a premium that would have endowed the policy without a policy loan, by taking out a policy loan the policy might now lapse without value before it reaches maturity. The loan should be important enough to the policyowner to justify impairing the account value, reducing the death benefit and facing possible taxes on part of the loaned amount in the event the policy is surrendered.
The use of loans as retirement income should be monitored carefully. If the insured dies while the policy is in force, loans are subtracted from the death benefit and there is generally no federal income tax liability under current interpretations of the law. If, however, the policyowner surrenders the policy because the net cash surrender value (cash value less indebtedness) will not support the monthly deductions for mortality and other costs and the policyowner is unable or disinclined to pay sufficient premium to maintain the policy, the taxes may exceed the surrender value.
Encourage your clients to use the loan privilege with care, if at all, and be sure to give them the full story.
The interest rate credited on loaned amounts is guaranteed in the contract.
Interest Rate Charged on Policy Loan 8%
Guaranteed Interest Rate Credited to the Loaned Account Value: 4%
Difference: 4%
This is the maximum direct cost of a policy loan.
By Company practice, the interest rate credited to loaned amounts (currently 6 percent on UL800) exceeds the guaranteed policy loan credited rate. Using UL800 as an example, the following illustrates the current direct cost of a policy loan.
Interest Rate Charged on Policy Loan: 8%
Interest Rate Credited to Loaned Account Value: 6%
Difference: 2%
1. After 10 policy years, on polices with banded interest rates, the banding is based on the total account value, including loaned amounts.
2. The special current interest rate applied to loaned account values is now subject to banding.
UL800, 11th Policy Year
Unloaned Account Value = $30,000
Policy Loan = $10,000
Total Account Value = $40,000 (top band)
Interest Rate Charged on Policy Loan: 8%
Current Base Interest Rate Credited to Loaned Account Values: 6%
Current Interest Rate Credited to Loaned Account Values (After Banding): 7%
Difference: 1%
If this example illustrated the 17th policy year, the .6% bonus would be added to the current interest rate credited to loaned account values.
Interest Rate Charged on Policy Loan: 8%
Current Interest Rate Credited to Loaned Account Values After Banding and Bonus: 7.6%
Difference: 0.4%