Minimum Premium (Universal Life Insurance)

Minimum Premium refers to the lowest amount of money that must be paid into a Universal Life Insurance policy to keep the insurance coverage active. This amount is calculated by the insurer and is based on a combination of factors related to the insured person and the structure of the policy.

What the Minimum Premium Covers
The minimum premium is designed to cover the cost of insurance and any additional benefits or riders selected in the policy. It also includes:

• Administration fees
• Premium taxes (set by the province or territory)
• Any charges for substandard risks or rate class adjustments

If the policyholder pays less than the required minimum and there is not enough value in the investment accounts to cover the monthly deductions, the policy may lapse and the coverage will end.

Key Factors That Affect Minimum Premium
The minimum premium is calculated using several variables, including:

• Insurance amount (coverage level)
• Age, sex, and smoking status of the insured person
• Cost type (level or annually increasing)
• Any additional riders or benefits
• Provincial premium tax rate
• Substandard ratings (if applicable)

The minimum premium may increase or decrease over time depending on changes to the policy. For example:

• Adding more coverage or benefits increases the minimum premium
• Reducing coverage or removing benefits decreases it
• Changes to provincial premium tax rates can also affect the amount

Why Minimum Premium Matters

• Keeps the policy in force: You must pay at least the minimum premium or have enough accumulated value in your investment accounts to cover monthly deductions
• Helps estimate affordability: The minimum premium gives you a baseline cost for maintaining the policy
• Guides contribution strategy: You can choose to pay only the minimum or overfund the policy to build cash value faster

Minimum Premium vs. Maximum Premium

Bottom Line:
The minimum premium is the essential cost to maintain your universal life insurance coverage. It ensures that the policy remains in force and the insured person continues to be protected. While it’s possible to pay just the minimum, working with an insurance advisor can help determine whether additional funding may benefit your long-term goals, especially if you want to grow tax-advantaged savings inside your policy.