Life Insurance✓ Verified · outline & fact-checked · Sep 2026Difficulty 2/5
A universal life policy states a 'guaranteed maximum premium.' What does that guarantee mean?
Select an option to reveal the answer and the full 3-part explanation — free, no signup.
Answer & full 3-part explanation (select an option above, or peek)
Why B is correct
Universal life policies are interest-sensitive: the premium needed to keep coverage in force can change as credited interest and mortality charges change. The guaranteed maximum premium is a contractual cap — the insurer guarantees that if the policyowner pays no more than this amount, the policy will remain in force even under the worst permitted assumptions (guaranteed interest and maximum cost of insurance). The initial or target premium is the amount the insurer estimates is needed under current assumptions, which is normally lower than the guaranteed maximum.
Why the other options are wrong
- A) UL premiums are flexible; the initial or target premium is only an estimate under current assumptions, and the guaranteed maximum is a ceiling, not a fixed required amount.
- C) The guaranteed maximum premium is a cost cap, not a refund; lapse and cash value are governed by other contract provisions.
- D) Commissions are set by the insurer's compensation schedule and have nothing to do with the guaranteed maximum premium.
Memory hook
Guaranteed maximum = the ceiling price of staying insured, whatever the markets do.