Modified participating level coverage permanent life insurance policy under which the dividends are credited to the policy, thereby reducing the premiums below that usually charged for an ordinary life insurance policy. The structure of the policy is such that the dividends are used to purchase increments of paid-up additions of permanent life insurance. As the face amount (face of policy) is reduced (usually after 2, 3, or 4 years that the policy is issued), the accumulated paid-up additions are generally sufficient to make up the difference between the reduced face amount of insurance and the initial face amount of insurance purchased. The purpose of this approach is to maintain the death benefit at a level at least equal to the original amount of insurance purchased. Most of these policies guarantee that the death benefit will not fall below the original amount of insurance purchased, regardless of the fact that the dividends prove to be inadequate to purchase sufficient amounts of paid-up additions.
Another approach to the structuring of this product is to stipulate that the face amount of the policy is equal to 50 to 90% of the death benefit. The difference between the face amount and the death benefit is comprised of paid-up additions of permanent insurance and term insurance purchased by the dividends. This procedure will guarantee that the payable death benefit will not fall below that initially purchased. As time goes on, the aggregate paid-up additions should be sufficient so that it is no longer required that term insurance be purchased.