When does an insurer deduct administration fees from a back-end loaded universal life contract?

In a back-end loaded universal life insurance contract, administration fees are typically deducted when a policyholder surrenders the policy, particularly in the initial years. This is designed to cover the costs associated with issuing and maintaining the contract, and these fees are structured to be a percentage of the cash value or a specific dollar amount taken from any surrender proceeds.

Choosing the option related to surrenders within the first 10 years reflects common practice in the insurance industry, where early surrenders often incur higher fees to recover costs for the insurer. After this period, surrender charges usually decrease or may be eliminated altogether, thus making it more financially feasible for policyholders to exit the policy without significant loss.

Other options may suggest timelines or conditions that do not align with typical policy structures in back-end loaded contracts. For instance, administration fees that apply strictly at policy maturity or only after the 10th year do not reflect the immediate financial impact that policyholders face when they choose to surrender their policies early in the contract’s life.