Universal Life Insurance: Maximum Payout Amount
In general, insurance exists as a way to cover unexpected expenses IF the worse case scenario should happen. However with life insurance, it is just a matter of time until a policyholder passes away and the insurance company will have to pay out a death benefit. Permanent life insurance and its varieties are the only type of life insurance policies that guarantee a death benefit payout. To limit the amount of risk they are taking with their payout amounts for universal life insurance, you will need to pay substantial premiums over the life-span of the policy.
Differences in Policy
The maximum payout for your universal life insurance policy is up to the discretion of the insurance company providing the coverage. According to reports in the Wall Street Journal in 2004, many insurance companies significantly raised the maximum payout amount for all whole life insurance policies including universal life insurance. At that time, MetLife announced that they raised their minimum coverage of $2,000,000 to allow a 30-year-old earning $100,000 to purchase $3 million in life insurance.
Changes to Max Payouts
Prior to the changes in the maximum payout for universal insurance death benefits, insurance companies used to operate with the standard “death benefit equaling seven to 10 times a person’s annual salary.” However many people did not even come close to achieving that level of purchasing and instead averaged about 2.5 times annual income.
The cost of a $3,000,000 universal life insurance policy would be extremely expensive and the premiums may intimidate the average person. When it comes to selecting a life insurance policy, it is important that you consider your personal quality of life and determine your own maximum payout amount that you’re comfortable with.