Can Universal Life Insurance be Used to Provide Death Benefit Under a Qualified Plan?

Universal life and similar products may be used. However, even though universal life has an investment element like that in a whole life policy, the IRS has taken the view that the incidental limits are applied as in the case of term insurance – that is, the aggregate premiums paid must be less than 25 percent of aggregate plan contributions for the participant. While this is clearly incorrect (since a portion of a universal life premium represents a savings or investment element), neither the IRS nor the courts have yet offered relief from this 25 percent limitation.

Reproduced with permission.  Copyright The National Underwriter Co. Division of ALM

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