Final answer:
Increasing the death benefit in a universal life policy will typically increase premiums, as the insurer needs to balance the risk associated with a higher payout.
Step-by-step explanation:
In a universal life policy, if the policyholder increases the death benefits, the premiums will also increase in reaction to this.
Universal life insurance is a type of cash-value life insurance that allows policyholders to adjust their death benefits and premium payments. When the policy owner chooses to increase the death benefits, the insurance company considers this as a higher risk and adjusts the premiums accordingly.
For example, let's say a policyholder has a universal life policy with a death benefit of $100,000 and a premium of $500. If they decide to increase the death benefit to $150,000, the insurance company may increase the premiums to reflect the higher amount of coverage.
In the context of a universal life policy, if the policy owner decides to increase the death benefits, another component that will generally see an increase, as a result, is the premium. This is because the cost to the insurance company to provide a larger death benefit is higher, and therefore, they require more premium payments to offset the added risk. Additionally, the policy's cash value may be affected, as more premiums might be necessary to ensure the cash value continues to grow while supporting the larger death benefit.