What Is Universal Life Insurance?
Universal life insurance is a type of permanent life insurance that offers more flexibility than whole life. You can adjust your premium payments and death benefit as your needs change. The cash value earns interest based on current market rates (with a guaranteed minimum). Some variations, like indexed universal life (IUL), tie cash value growth to stock market indexes.
How It Works
You pay premiums into the policy, which are split between the cost of insurance and a cash value account. The cash value earns interest at a rate that may change (but has a guaranteed minimum). You can increase or decrease your premiums and death benefit within policy limits. If your cash value grows enough, it can even cover your premiums.
Who Is It For?
- People who want permanent coverage with flexibility
- Those whose income varies year to year
- People who want to adjust coverage as life changes
- Those interested in market-linked cash value growth (IUL)
- Individuals with complex estate planning needs
Pros & Cons
- Flexible premium payments
- Adjustable death benefit
- Cash value earns potentially higher returns than whole life
- Guaranteed minimum interest rate
- Tax-deferred cash value growth
- More complex than term or whole life
- Cash value returns are not guaranteed (except minimum)
- Policy can lapse if cash value is depleted
- Higher fees and administrative costs
- Requires active management and monitoring
What Affects the Cost?
- Type: standard, variable, or indexed universal life
- Age and health at purchase
- Coverage amount and flexibility features
- Current interest rate environment
- Policy fees and administrative charges
Typical cost: $100-350/month depending on type and coverage
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