Did you know that the 250% rule will practically negate one of the most attractive features of a universal life (UL) contract that has been minimally funded for the first 10 years? Periodic lump sum deposits or “dump-ins” as they are commonly called along with the tax sheltered growth of funds selected, and are among the most attractive features of universal life insurance contracts. However, if policies have no fund values because the amount being paid is just enough to cover the cost of the insurance (amount at risk) and administrative charges, advisors and their UL policy owners will be surprised at the limitations if they want to do a “dump in” in the 10th year any year thereafter. The 250% rule is an anti-dump in rule which states that the amount contributed / deposited in the 10th year or any year thereafter will be limited to 250% or 2.5 times the amount of the fund value 3 years before. So in the 10th year the limit will be 2.5 times what the fund value was in the 7th year. In the 11th year the limit will be 2.5 times what the fund value was in the 8th year, and so on. So if the fund value in year 7 and beyond is zero, well 250% of zero is still zero!
Tags: 250% Rule, universal life
Helena Smeenk Pritchard
Helena Smeenk Pritchard has over 36 years of experience in the insurance industry and is the Principal of Helena Smeenk Pritchard & Associates, a leader in “Insurance Know-How” training. Helena has had articles published in Advocis’ Forum Magazine as well as Advisor’s Edge, and is a very popular columnist for Advisor.ca.
Est-ce que la règle du 250 % s’applique après 85 ans. ??
Passé 85 ans, la police type exemptée est de 0 $!!
Ordinairement, on investit un montant plus petit que Police type exemptée ou 250 % la valeur du fonds 3 ans avant. ???.
En conclusion, la règle du 250 % s’applique t-elle passé 85 ans ???
Raymond thank you for this question/comment. I have investigated your question and the answer will be forthcoming inthe Sept 1 Did You Know! Stay tuned … cheers, Helena
[...] because it is “being minimally funded” then the owner needs to be very aware of the 250% rule which comes into effect in the policy’s 10th year. Also, be sure to thoroughly understand the [...]
[...] short, exempt testing which applies to all Universal Life contracts starting in the 10th year (see http://www.insuranceknowhow.ca/the-250-rule-surprise) caps the amount of tax sheltered growth of funds by ensuring that the fund growth does not exceed [...]