Flexible-Premium Life Insurance Policies

Index Universal Life Policies and Universal Life Policies are considered flexible premiums policies. You can make minimum payments that cover the cost of insurance only, or maximum but not exceed IRS guidelines. Commonly they’re referred to as IULs and ULs. If you make an overpayment, then excess premium earns you interest. The company then credits your policy at the end of each year.  

How do they work?

When you pay your premiums, any amount over the cost of life insurance that year goes towards your cash value. Therefore, both types, the IUL or UL policies, can earn interest.

The downside of paying the lowest possible premium allowed or using your cash value can be that the cash value runs out. So it’s frustrating to hear that the policy may lapse, that the policy needs more cash to keep it active.

Conversely, if you pay more in those early years, then your policy may not only cost you less, but it could pay you an income. In addition, there are IRS guidelines on how much you can put into your life insurance policy.

For this very reason, it’s imperative to do a review of your policy’s annual statements to be sure it’s performing to your expectations.

Isn’t a permanent life insurance policy, well, permanent?

There’s a difference between the guaranteed performance and the projected performance of a policy. 

It’s rare that the carrier only pays out the guaranteed rate, and it indicates the worst-case scenario showing minimum returns and maximum fees that an insurance company can charge.  

The projected performance of your policy has caps that run about 10% – 12% annually. Generally, these policies retain the previous year’s earnings as long as you continue to pay your scheduled premiums that cover the following year’s cost. 

Maturity Date

ULs and IULs have what is called a maturity date. When you turn a certain age (generally between 85 to 121), it occurs. When the policy reaches its maturity date, usually you receive a payment, and then coverage ends. It can be the death benefit amount or a specified dollar amount, but it’s typically equal to the policy’s cash value.

If you live past the maturity date, you may receive only the cash value, and the coverage ends. Therefore, you want to choose a policy with an extended maturity date. So you’ll always want to select the oldest age for the maturity date.