Universal life insurance represents a significant change from the traditional fixed premium whole life insurance products that preceded it. Earlier life insurance products were characterized by inflexibility in premiums, cash value, and death benefit. If the policy owner wants to reduce the premium for a whole life insurance policy, it is necessary to reduce the face value of the policy through a partial surrender of the policy. Unfortunately, this can result in the release of cash value to the policy owner and possible income tax liability. Universal life insurance policies unlock the connection between premium, face amount and cash value.
Despite the premium flexibility, of universal life insurance, there are certain rules that apply to premium payments. Although a policy owner may choose to pay no premium into the policy on a particular premium-due date, any payments that are made must meet a certain minimum to help the carrier to manage the costs of premium collection and processing.
The universal life insurance target premium is generally the amount of premium that will keep the policy in force for the insured’s lifetime. There is, however, no guarantee that the universal life insurance policy will remain in force for that period if only the target premium is paid. In fact, there is no guarantee that the universal life insurance policy will remain in force regardless of the premium level that is maintained by the policy owner.