Frequently Asked Questions - Variable Annuity Only

Close This Window
Return to FAQ List
What is Variable Universal Life (VUL) insurance?
Variable universal life insurance is permanent insurance that combines the core benefit of life insurance – protection for beneficiaries through an income-tax free death benefit – with significant flexibility for investors. It permits investors to structure policies to help meet their personal or business objectives through flexibility in premium payments, investment options, and death benefits. Variable universal life insurance involves the risk of investing in equity securities, including market risk and loss of principal. If the investment performance of underlying investments is poorer than expected (or if sufficient premiums are not paid), the policy may lapse or not accumulate sufficient value to fund the intended application. Investments in variable universal life insurance policies are subject to fees and charges from both the insurance company and the managers of underlying investments.
What is the Minimum Monthly Premium Guarantee?
This is sometimes referred to as the "Lapse Protection." This policy feature ensures that the policy will remain in force through the Minimum Monthly Premium Guarantee Period, as shown on the Policy Specifications Page, regardless of policy value, provided the premium requirements are met. (See "What is the Minimum Monthly Premium?" below.) This feature is not available on all policies.
What is the Minimum Monthly Premium (MMP)?
The MMP is the amount necessary to keep the Minimum Monthly Premium Guarantee ["Lapse Protection"] in effect. The MMP is shown on the Policy Specifications page or any Supplemental Policy Specifications page attached to the policy. If for each month that the policy has been in force the total premiums paid, less any withdrawals and policy debt, is greater than the MMP multiplied by the number of policy months since the Policy Effective Date, including the current month, the Minimum Monthly Premium Guarantee is in effect.
What is a Lapse?
The termination of the policy for lack of sufficient premiums or Surrender Value at the expiration of the Grace Period while the Insured is still living.
What is the Grace Period?
The Grace Period is the 61-day period that is entered if the Surrender Value is insufficient to cover the Monthly Deductions due on that Monthly Anniversary Day and the policy is not being continued by the Minimum Monthly Premium Guarantee.
What is the Policy Value of a Variable Universal Life insurance policy?
The Policy Value is the sum of the Variable Account value, the Fixed Account value and the Loan Account.
What is the Variable Account value of a Variable Universal Life insurance policy?
The sum of all Sub-Account values.
What is a Sub-Account?
A separate division of the Variable Account. Each Sub-Account invests in a corresponding fund. The underlying variable sub-accounts in any Protective Life Variable Universal Life policy may contain different investments than similarly named mutual funds offered by the investment managers. Investment results may be higher or lower.
There can be no assurance that the stated objectives and policies of any of the variable sub-accounts will be achieved. An investment in any of the variable sub-accounts is subject to market risk and loss of principal. The investment return and principal value of an investment in any of the variable sub-accounts will fluctuate, so that an investor’s units, when redeemed, may be worth more or less than their original cost.
What is a Fund?
An investment portfolio of Protective Investment Company or any other open-end management investment company or unit investment trust in which a Sub-Account invests.
What is the Fixed Account?
The Fixed Account is part of Protective Life’s General Account, and offers a guaranteed rate of interest for a 12-month period for any amounts allocated to it. Interest rates applicable to the Fixed Account are set at Protective Life’s sole discretion and are subject to its claims paying ability. Rates, availability, and terms may vary.
What is the Fixed Account value of a Variable Universal Life insurance policy?
The value of the Fixed Account at any time is equal to: (a) the Net Premiums allocated to the Fixed Account; plus (b) Policy Value transferred to the Fixed Account; plus (c) interest credited to the Fixed account; less (d) any Withdrawals including any withdrawal charges deducted or transfers from the Fixed Account including any transfer fees deducted from the Fixed Account; less (e) any surrender charges deducted in the event of a decrease of Face Amount less (f) Monthly Deductions.
What is the Loan Account?
An account within Protective Life’s general account to which Fixed Account Value and/or Variable Account Value is transferred as collateral for Policy Loans.
What is a Policy Loan?
A Policy Loan is created when the policyowner borrows cash value from the policy using the policy as collateral.
What is the Cash Value of a Variable Universal Life insurance policy?
The Cash Value is equal to the Policy Value minus the Surrender Charge.
What is a Surrender Charge?
A Surrender Charge is a contingent deferred sales charge deducted from the Policy Value if the policy is surrendered, lapses, or the initial face amount is decreased during the surrender charge period.
What is the Surrender Value of a Variable Universal Life insurance policy?
The Surrender Value is equal to the Cash Value minus any outstanding policy debt and any policy liens plus accrued interest, where applicable.
What is Policy Debt?
The sum of all outstanding policy loans plus accrued interest.
What is Withdrawal?
A Withdrawal, also known as a Partial Surrender, is the withdrawal by the policyowner of an amount of Cash Value that is less than the Surrender Value. There may be a fee associated with the withdrawal. Withdrawals may reduce the face amount. A withdrawal may not reduce the face amount less than the minimum face amount.
What is a Monthly Deduction?
A Monthly Deduction is comprised of (1) the Cost of Insurance Charges; (2) the Mortality and Expense Risk Charge; (3) the Administration Fee; and (4) charges for any riders that are elected. The Monthly Deduction is taken at issue and on each Monthly Anniversary Day.
What is TEFRA?
The TAX EQUITY AND FISCAL REFORM ACT OF 1982 AND TAX REFORM ACT OF 1984 is referred to as TEFRA. The IRS Rules provide two alternative tests to check for TEFRA: The Guideline Premium Test (GPT) and Cash Value Accumulation Test (CVAT). These tests help determine the future pattern of death benefits and the maximum premium amount that may be paid into a policy in order to qualify as life insurance. The election of the test to be applied to the policy must be made at issue and cannot be changed. CVAT may not be available on all products or in all states.
What is the Guideline Premium Test (GPT)?
The GPT sets a minimum relationship between the death benefit and the policy value. The ratio is 250% at attained ages 0 – 40 and decreases to 100% by attained age 95. In addition, at any time, the total of the premium payments less any withdrawals may not exceed the greater of the Guideline Single Premium (GSP) or the sum of the Guideline Level Premiums (GLP) to that same date. The GSP is the total of premium payable at issue to fund the future benefits of the policy. The GLP is the level annual amount payable over a period, extending to the insured’s 100th birthday, to fund the future benefits of the policy. The GLP is substantially larger for policies with an increasing Death Benefit Option. If a policy fails the GPT, in order to bring the policy into compliance, one of the following items must occur: A portion of the paid premium amount must be refunded or the Face Amount must be increased (requiring evidence of insurability).
What is the Cash Value Accumulation Test (CVAT)?
Under CVAT, the policy value of a policy must not at any time exceed the Net Single Premium (NSP) necessary to fund future benefits under the policy. To satisfy the CVAT, the death benefit will increase to keep the NSP greater than or equal to the policy value of the policy. In addition, if benefits under the policy are reduced after issue, CVAT will generally allow much more flexibility in choosing premium amounts.
What is TAMRA?
TECHNICAL AND MISCELLANEOUS REVENUE ACT OF 1988 is referred to as TAMRA. This act imposed additional limits on the funding of an insurance contract. If a policy is funded more rapidly than would be required by paying level annual premiums during its first seven years (7 pay premium limit), the policy is classified as a modified endowment contract (MEC). MECs retain the benefits of tax free death proceeds and tax deferred internal build-up of cash values; however, transactions such as loans, partial surrenders, or collateral assignments may be subject to taxes and penalties. Any amount distributed which is considered gain or interest is subject to current income tax. Also, there is a 10% tax penalty if the distribution is taken before the owner’s age 59 ½, except in the case of disability.
How do I know the TEFRA and TAMRA limits?
Upon request, we will provide the Guideline, CVAT, and 7-Pay Premium limit amounts. The Guideline, CVAT and 7 Pay Premium limits can change if there is a change in any of the following: face amount, death benefit option, underwriting classification, riders, supplementary benefits, or extra premium ratings. For TAMRA, a material change of a policy will generally result in a reapplication of the 7-Pay Test. A reduction in benefits (such as a face reduction) triggers a recalculation of the 7-Pay Premium Test amount and may cause a policy to become a MEC.
Can my Premiums exceed the Guideline Premium limit (GPT)?
No. To ensure compliance with regulations, the policy contract provision, "Premium Limitation" allows Protective to limit the amount of premium paid. Our company practice is to refund premium in excess of the Guideline Premium limitation.
Can my premiums exceed the Cash Value Accumulation Test limit (CVAT)?
No. However, unlike GPT, there is no legal limit to the amount of premium that can be paid into a CVAT contract. Once the Policy Value exceeds the NSP any additional premium will increase the Net Amount at Risk (NAAR). If a premium payment will cause an increase of $20,000 NAAR, and the premium paid is more than $20 per $1000 of insurance, then we would ask for evidence of insurability and the case would have to be referred to an underwriter to review in order to possibly increase the face amount to keep the policy in compliance.
Can my premiums exceed the 7-Pay Premium limit (TAMRA)?
Yes. If the policyowner chooses to pay premiums in excess of the 7-Pay Premium limit, the policy will be classified as a MEC. If the policy becomes a MEC, we must report gain to the policyowner and the IRS on any distribution or collateral assignment.
What is a Modified Endowment Contract (MEC)?
A life insurance policy that does not meet the TAMRA rules becomes a MEC when the premiums paid during the first seven years of ownership exceed the amount that would be necessary to fund all future benefits with seven level annual premium payments (the 7-pay test). If a policy is deemed to be a MEC, in addition to ordinary income tax on gain, a distribution made to a non-disabled policyowner prior to age 59 ½ will also incur a 10% penalty tax on the amount disbributed that is attributable to gain. Loans, withdrawals and surrenders are considered to be distributions.
What is the Death Benefit?
The Death Benefit(as displayed) is the amount of insurance provided under the Policy as determined by the Death Benefit Option selected (includes increases to the base policy) minus any Policy Debt or Policy Lien plus interest, if applicable, minus any unpaid monthly deductions if the Insured dies during the Grace Period. There are two Death Benefit Options: Level and Increasing.
What is the Face Amount?
The Face Amount is the amount of insurance that you purchased adjusted for any increases or decreases either requested by you or as a result of changes to the Policy in the accordance with the terms of the Policy.
What is a Level Death Benefit Option?
The Level Death Benefit Option pays the greater of the Face Amount or a specified percentage of the Policy Value.
What is an Increasing Death Benefit Option?
The Increasing Death Benefit Option pays the greater of the Face Amount plus the Policy Value or a specified percentage of the Policy Value.