Universal Life Insurance

Universal life is a type of permanent life insurance. These policies combine lifelong coverage with a cash value that grows over time.

Permanent life insurance differs from term life insurance, which only lasts for a specific time period, such as 20 years.

Flexibility is a unique feature of universal life policies. Most universal life insurance policies allow you to modify or skip premium payments under certain circumstances.

You can also adjust the death benefit coverage amount more easily with a universal life policy than other types of life insurance.

A common feature across all types of permanent life insurance is a growing cash value you can borrow against. Cash value gains grow tax-free.

Universal life insurance policies accumulate cash value based on current interest rates. Your monthly or yearly premiums will likely increase as you age.

However, once your cash value is large enough, you can access part of it without affecting the policy’s guaranteed death benefit.

For this reason, some policy holders choose to pay the maximum premium during the first several years of coverage in order to grow a substantial cash value. That money can then be tapped to cover higher premium payments in the future.

Universal life insurance shares many similarities with whole life insurance.

A major difference is that whole life policies offer predictable, fixed premiums and guaranteed cash value accumulation while universal life policies feature adjustable premiums and death benefits.

There are a few common types of universal life insurance policies, and each one offers unique features and benefits.

Universal life insurance can also be structured for two people at once.

For example, a survivorship universal policy covers two people and pays a death benefit when the last person insured under the policy dies.

A joint universal life insurance policy is another way to include two people on one policy. The death benefit is paid when the first policy holder dies.

Universal life insurance offers benefits such as adjustable premiums and coverage that never expires.

Policies also trend cheaper than other forms of permanent life insurance, such as whole life.

However, universal life premiums are still more expensive than term life insurance options.

For example, according to Senior Market Sales, a 45-year-old man purchasing a guaranteed universal life insurance policy with a $1 million death benefit can expect to pay about $9,948 a year for coverage.

For this reason, many experts recommend term life insurance for the average consumer.

Still, universal life insurance offers tax advantages that may be appealing to wealthier consumers.

A policy’s death benefit can be used to fund a trust fund for heirs or secure an endowment for your favorite charity.

You may also consider a universal life insurance policy if you need both an investment vehicle and life insurance.

However, most experts only recommend exploring cash value life insurance after maxing out other retirement savings vehicles, such as a 401(k) or IRA.