Fund value refers to the accumulated value of the investment component within a universal life insurance policy. It represents the total market value of the funds held in the policy’s investment accounts, after deducting any applicable fees or charges. The fund value is separate from the guaranteed death benefit but can be paid out in part or in full depending on the policy structure and payout option selected.
In a universal life policy, the fund value grows over time based on the performance of the selected investment options, which may include equity, bond, or interest-bearing accounts. It is often used to cover the ongoing cost of insurance and administration fees.
Key features of fund value
| Feature | Description |
|---|---|
| Investment component | Represents the market value of investments selected by the policyholder |
| Separate from face amount | Fund value is distinct from the guaranteed death benefit or face amount |
| Fluctuates with market | Grows or declines based on investment performance and fund selection |
| Covers internal charges | Used to pay for insurance costs and administrative fees if sufficient |
| Accessible in some cases | May be partially withdrawn or used for policy loans, depending on the policy |
| Tax-deferred growth | Earnings grow on a tax-deferred basis while held within the policy |
Important considerations
- If the fund value is insufficient to cover internal policy charges and no additional premium is paid, the policy could lapse.
- The fund value depends on the investment options the policyholder chooses and isn’t guaranteed, unless an option itself guarantees a return.
- Upon death, depending on the payout option (for example, level or increasing), the fund value may or may not be paid to the beneficiary.
The fund value offers flexibility and tax-deferred growth, but it must be monitored regularly to ensure it remains adequate to support the policy over time.