Let's review the basic mechanics of Universal Life.
- The first thing that has to occur is a premium payment. <P1>
- A premium <P1>may be paid at any time and in any amount desired.
- Whenever a premium <P1> is paid, loads <E1>are deducted from that premium <P1>.
- The balance <P1-E1> is added to a fund <SIV>.
- On a monthly basis, cost of insurance charges <P2> are deducted from the fund <SIV>.
- Expense charges <E2> may be deducted from the fund <SIV>, especially in the early policy years, and interest <i>is added to the fund <SIV> on a monthly basis.
- The cash value <SIV> changes each month based on the net impact of the income <P1/i>and deduction transactions.
The policy does not lapse if a premium is not paid; rather, it lapses if the fund balance becomes too small to pay the next month's cost of insurance.
-- BEN H. MITCHELL
1981 - Universal Life, Society of Actuaries