Cash Value

The insurer notifies the policyowner, and the policy terminates if the excess is not paid — A policy loan is secured by the cash value. If the loan plus interest grows to exceed the cash value, there is no longer collateral for the debt. The insurer typically gives the policyowner notice and an opportunity to pay the excess; if the policyowner does not, the policy terminates. This is why policyowners are warned that unpaid loans can cause coverage to lapse with possible tax consequences.

National insurance concept

Coverage will stay in force for a specified period even if the cash value is not sufficient to cover monthly charges, as long as the required premium is paid on time — A no-lapse guarantee, also called a secondary guarantee, rider promises that the policy will remain in force for a stated period, often to a target age, even if the cash value drops to zero, provided the policyowner pays the required minimum premium as scheduled. It converts a universal life policy into a product that behaves more like guaranteed coverage with predictable protection. It does not guarantee premium levels or investment returns, and it does not excuse the owner from paying premiums. The guarantee is conditioned on meeting the premium schedule, which is the price of the protection.

National insurance concept