What is a corridor in relation to a universal life insurance policy?

In the context of a universal life insurance policy, a corridor refers to a feature that determines the amount of cash value and death benefit within the policy. The corridor represents the difference between the policy's cash value and the death benefit, known as the net amount at risk.

The corridor can be thought of as a buffer zone that protects the policyholder from lapsing the policy due to insufficient funds. If the cash value falls below the corridor, the policyholder may be required to increase their premium payments to keep the policy in force.

Additionally, the corridor impacts the policy's cost of insurance, as the insurance charges are based on the net amount at risk. A larger corridor typically results in higher insurance charges, while a smaller corridor can lead to lower charges.

Overall, understanding the corridor in a universal life insurance policy is important as it can affect the policy's performance, cost, and flexibility. It is advisable to review and adjust the corridor periodically to ensure the policy continues to meet your financial goals and needs.