What is the maximum loan amount a policyowner may withdrawal from a variable universal life insurance?

Frequently asked questions about variable universal life insurance

Is there a limit to how much premium can be put into a policy?
Yes, there is a limit to how much premium can be put into the account value in the first seven years for the policy to retain all its tax advantages. If premiums exceed 7-year IRS guidelines (which vary by age and gender of the insured and must be calculated by the insurance company) a Modified Endowment Contract (MEC) is created. While a MEC still offers a tax-free death benefit and tax-deferred growth potential, there are income tax implications if the policy owner borrows, withdraws from or surrenders the policy. The policy owner may also experience a 10% tax penalty on any gains distributed prior to age 59½.

Are there other tests to make sure my policy retains the tax advantages of a life insurance policy?
Yes, there are two alternative tests. The test selected can have a significant impact on premiums, cash surrender values and death benefits.

• The Cash Value Accumulation Test (CVAT) limits the account value relative to the death benefit
• The Guideline Premium Test (GPT) limits the premiums paid relative to the death benefit

Generally, the GPT offers lower cost of insurance charges over a long period of time. CVAT offers more premium and death benefit flexibility and provides a higher death benefit at life expectancy, although GPT offers higher death benefits at other ages.

Can the amount of coverage be changed after the policy is issued?
Yes, the policy owner can change the death benefit as needed. Death benefit increases may require new medical information. Decreases are permitted after the first policy year and the first 12 policy months following the effective date of an increase. The minimum base policy amount permitted after a decrease is $50,000.

Which death benefit option (A, B or C) is best for my client?
It depends. If there is a need for a level death benefit and the objective is to keep the premium required to maintain the policy as low as possible, then Option A may be the most suitable choice. If the objective is to have any favorable investment performance and account value increases reflected in an increased death benefit, then Option B may be the best choice. Option C is used most often in business insurance situations where there is a need for a death benefit equal to the initial amount plus cumulative net premium. See product details for more information.

Will this policy last a lifetime?
That’s how we designed it. However, insufficient premium, poor investment returns, higher policy costs, or excessive loans and withdrawals could cause the policy to lapse. We encourage you to use the automatic statements both you and your client will receive to monitor the policy’s value.

How can I keep track of my client’s policy values?
We can help. If you have proper authorization signed by your client, you and your client will automatically receive regular statements regarding the progress of the policy each time a premium payment is received or when a partial withdrawal, loan, investment portfolio transfer or other change occurs. Plus, you and your client will receive quarterly statements of current policy values, including a breakdown by investment option. Each year, you’ll receive a report detailing the past year’s activity. You can also check on the current value of the investment options and review policy benefits by signing in to our secure platform via the link on the home page.

What happens when my client applies for a policy?
We’ll take it from there. When we receive the application, an Ameritas Life associate will contact our examination vendor. The vendor will contact the applicant to schedule a convenient time for a trained medical professional to come to the applicant’s home or office to complete a medical questionnaire; gather weight, height, heart rate and blood pressure information; and collect a sample of blood and urine. We will keep you updated on the progress, alert you when an underwriting offer has been made and before we mail the policy.

What happens when the policy is issued?
When your client receives the policy, they have a ten-day “free look” period. During this time, any initial premium is allocated to the Money Market Portfolio. If the policy is returned within the “free look” period, your client will be refunded in full. If the policy is not returned after the “free look” period, the premium is allocated according to the instructions given on the application.

All permanent life insurance policies allow policyowners to borrow from the insurer an amount up to the cash surrender value in their policies. Loans against the cash value are normally available after the policy is in force for a specified time, typically three years. Usually the policyowner can borrow the entire cash surrender value less any prior debt against the policy.

A cash value loan does not literally draw down the policy's cash value. The policy loan is provided by the insurer, which uses the cash value as collateral. This explains an interesting fact about cash value loans: While the outstanding loan balance accrues interest, the cash value continues earning interest.

The interest rate charged by the insurer is usually the lesser of a guaranteed rate stated in the policy or a current rate announced by the company. The loan rate is typically no more than a percentage point higher than the rate credited to the cash value, and many times it is equal. This low net rate explains the popularity of cash value loans for "living benefits" purposes.

Although the policyowner is not required to repay a cash value loan, unpaid interest is capitalized (that is, the unpaid interest is added to the outstanding loan balance). In one way or the other, the insurer will recoup the outstanding loan balance (including accrued interest). If the policy is lapsed or surrendered, any cash value proceeds distributed to the policyowner will be net of the loan balance. If the insured dies, the death benefit is reduced dollar-for-dollar by the outstanding loan balance.

As long as the total amount of the loan plus interest is not greater than the cash surrender value, the policy remains in effect. If the loan amount plus accrued interest ever exceeds the cash value, then the policy is canceled.

Policy loans under traditional whole life insurance plans can be as high as 100 percent of the cash value. This is possible because all policy values are contractually guaranteed, allowing the insurer to calculate precisely the amount that can be borrowed without exceeding the cash value.

Variable life insurance policies limit policy loans to a lesser percentage of the cash value (typically 75 to 90 percent). This reflects the variable nature of the cash value and reduces the possibility of the unpaid loan being greater than the policy's cash value in a falling investment market.

What is the maximum loan amount a policy owner may withdraw from a variable universal life insurance policy?

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