Minimum premium

In universal life insurance, the minimum premium is the smallest amount the insurer says you can pay to keep the policy in force under certain conditions. Many policies define a minimum monthly premium that, if paid during an early period such as the first five or 10 years, guarantees the policy won't lapse in that period even if cash value falls to zero. Policies with a longer no-lapse or secondary guarantee use a similar required premium to keep that guarantee active, sometimes to age 90 or beyond.

The minimum premium differs from the planned premium, which is the amount you've chosen to pay, and from the target premium, an internal figure used mainly to set agent commissions. Say, hypothetically, a policy's minimum is $150 a month and the planned premium is $250: paying only $150 keeps the guarantee alive but builds little cash value.

The pitfall is assuming the minimum keeps a policy alive forever. Once the guarantee period ends, a policy funded at the minimum may need much higher payments to avoid lapse, especially as cost-of-insurance charges rise with age. Late or short payments can also break a secondary guarantee or require a catch-up payment. See why universal life policies lapse, and how to prevent it and no-lapse guarantees.