Each time a premium is paid, the company deducts its initial policy expenses or front-end loads. The remainder of the premium goes into the cash value fund from which insurance costs and expenses charges are deducted on a monthly basis. If the owner is not making payments sufficient to cover the monthly deductions, the cash value will diminish. If it reaches zero and no payment arrives within two months, the policy will lapse. If the policyholder surrenders the policy, there may be a surrender charge, or back-end load, which would be deducted from the surrender proceeds.
Most companies offer a discount for nonsmokers.
Current interest rates are determined from a variety of sources. Some may be tied to an outside index, such as the discount rate on 13-week Treasury Bills. Others may simply use a rate declared by their board of directors. Cash value funds are available for policy loans or partial withdrawals. Loaned values usually are credited with a different interest rate from that credited on unborrowed funds.