Understanding the “Adjustable” Nature of Universal Life Death Benefits

One of the core flexible features of Universal Life (UL) is the ability for the policyholder to **adjust the death benefit** after the policy has been issued. This feature allows the coverage to evolve with the policyholder’s changing financial obligations.

Options for Adjusting the Death Benefit

• **Decrease the Death Benefit:** Policyholders can typically request a decrease in the death benefit amount. This lowers the insurer’s risk, resulting in a reduction of the monthly Cost of Insurance (COI) and allowing the cash value to accumulate faster.
• **Increase the Death Benefit:** An increase may be requested, but this requires the policyholder to undergo a new medical exam and full underwriting process to prove insurability.

Death Benefit Options (DBOs)

UL policies usually offer two payout structures that impact how the death benefit and cash value interact:

1. **DB Option 1 (Level):** The death benefit remains level. As the cash value grows, the Net Amount at Risk (NAR) decreases.
2. **DB Option 2 (Increasing):** The death benefit is the initial face amount plus the cash value. The total benefit increases as the cash value grows.

Disclaimer: This content is for informational purposes only and is not financial or legal advice. Decreasing the death benefit may result in tax liabilities if the policy becomes a MEC.