Final answer:
A universal life policy remains in force as long as it has enough cash value to cover costs. The policy combines death benefit and savings, and policyholders can adjust premiums and benefits to some extent. Borrowing against the policy is possible, and sustainability is influenced by investment income and operational costs.
Step-by-step explanation:
A universal life insurance policy owner can be assured that the contract will remain in force as long as the policy has sufficient cash value to cover the costs of insurance. This type of policy combines a death benefit with a savings element, which accumulates over time and can be used by the policyholder. Policyholders make regular payments into their insurance, part of which goes toward the death benefit and part of which goes into the savings component. If medical expenses are incurred, or the policyholder dies, the death benefit is paid out. Moreover, universal life insurance also involves elements of flexibility where the policy owner may have the option to adjust premium payments and death benefits, within certain limits.
To ensure the policy remains active, the policyholder must ensure that there is enough cash value to cover the monthly costs deducted from this value. Should the cash value be insufficient, the policyholder must make additional payments to maintain the insurance. It’s also worth noting that policyholders could borrow against the policy based on the cash value they have accrued, which must be repaid with interest.
However, various factors such as investment income earned on reserves, administrative costs, and the inherent risks associated with different policy groups influence the sustainability and performance of the insurance policy. The fundamental law of insurance dictates that over time, one's payments into the insurance must suffice to cover their claims, and the costs of operation, and provide some room for insurance company profits.