Long Term Care Insurance Consumer Buying Guide.
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As we mentioned in previous articles, UL plans are unbundled, the various components of the plan such as insurance charges and earned interest can each be isolated and quantified. Consequently, they are much easier to understand and explain than traditional bundled permanent life insurance products. In this article, we will discuss the minimum and maximum premiums of the universal life policy.
Most companies place contractual restrictions on the minimum and maximum deposits they are prepared to accept in the early years of a UL plan. As a policy holder, you have the right to choose any amount of premiums between the minimum and maximum premiums range. Generally the lower the minimum premium and the higher the maximum premium, the more flexible the UL plan is with respect to funding options.
1. Minimum premium
Many insurance companies allow only minimum premium paid as long as the premium is enough to cover the cost of insurance. Some companies apply the minimum premium restriction only for the first year of the policy. Others require that no less than the minimum premium must be paid in the first year and at least two times the minimum premium must be paid after two years. Yet others require that at least five times the minimum premium must be paid into the plan after five years. Of course, if the first year deposit is greater than five times the minimum premium, no future deposits would be contractually required.
Under universal life options, the policy holder can make a large initial premium and does not need any additional premiums again as long as the investment funds in the policy are enough to cover the insurance cost. In Fact, a higher minimum deposit requirement forces the policyholder to put more money into the plan in the early years to build up a fund value within the plan. This is the obligation of the insurance company to inform you when the additional premium is required, usually caused by depletion of investment fund in the policy.
2. Maximum premium
Maximum premiums are usually only a factor in the first policy year. In subsequent years, usually the only restriction is that the fund value or cash value of the plan be kept below the exempt line. Therefore, beyond the first year, maximum policy deposits vary with many factors such as credited rates, and past deposits as long as they do not force the policy to become non-exempt.
In fact most companies link a taxable side fund to their UL contracts. They are therefore, usually able to accept much larger deposits since any funds that are over the maximum are placed into this side fund where growth is taxed annually. When the accumulating fund drops below the exempt line, many of these plans automatically transfer dollars from the side fund to the policy fund, thereby maximizing the tax sheltering aspect of the plan in the process.
I hope this information will help. If you need more information, you can read the complete series of the above subject at my home page:
http://lifeanddisabitityinsuranceunderwriter.blogspot.com/
http://life-insurance12.blogspot.com
