What it is
Universal life insurance is a type of permanent life insurance. It combines a death benefit with a cash value account, and it gives you more flexibility than whole life in how much and when you pay.
How it works
- Your premiums go into the policy, and the policy's cost of insurance and fees are deducted.
- What remains builds cash value, which earns interest credited by the insurance company.
- Within limits, you may be able to adjust your premium payments and death benefit as your needs change.
- When you pass away, your beneficiaries receive the death benefit, as long as the policy is in force.
Premiums and coverage length
Universal life is designed to last your lifetime, but only if the policy stays adequately funded. Premiums are flexible, within limits. Paying less may be allowed, but the cost of insurance generally rises with age. If the cash value isn't enough to cover those costs, you may need to pay more to keep coverage.
Cash value
Cash value grows based on the interest the insurer credits, which can change over time, subject to any minimum stated in the policy. You may be able to borrow against or withdraw from the cash value. Loans accrue interest, and loans and withdrawals reduce the death benefit and can increase the risk of a lapse.
Types of universal life
Some universal life policies credit interest differently. Indexed universal life (IUL) credits interest based partly on a market index, subject to limits set by the policy. Variable universal life (VUL) is a securities product and is sold only by appropriately licensed professionals. Ask Hollen which options she can help with.
Pros and considerations
Pros
- Flexible premiums, within policy limits
- Death benefit may be adjustable as your needs change
- Builds cash value that you may be able to access
Considerations
- Underfunding can cause the policy to lapse, ending coverage
- Credited interest can change, which affects cash value
- Needs regular reviews to stay on track
- Usually costs more than term for the same benefit
Who it's often a fit for
- People who want permanent coverage with more flexibility than whole life
- Those whose income or needs may change over time
- People willing to review their policy regularly
What affects the premium
Every application is priced individually. These factors usually matter most:
- Your age and health when you apply
- Tobacco use
- Coverage amount and death benefit option
- How much and how often you fund the policy
- Cost of insurance charges and fees, which can change
- The crediting method (fixed, indexed, or variable)
When to consider it
Universal life can fit people who want permanent coverage with some flexibility in what they pay. It works best when someone is willing to review the policy each year and fund it consistently.
Common mistakes to avoid
- Paying only the minimum premium and letting the policy underfund
- Not reviewing annual statements and in-force illustrations
- Assuming illustrated returns are guaranteed
- Not understanding caps, participation rates, and fees on indexed policies
- Taking loans or withdrawals without checking the impact on coverage
How Hollen helps
Hollen learned first-hand how an indexed policy can behave when markets fall, which is why she walks through caps, fees, and funding in detail and reviews in-force illustrations with you, so the policy keeps doing what you bought it to do.
Frequently asked questions
Can a universal life policy lapse?
Yes. If premiums and cash value aren't enough to cover the policy's costs, it can lapse and coverage ends. Reviewing your policy regularly helps you catch shortfalls early.
How is universal life different from whole life?
Whole life usually has fixed premiums. Universal life lets you adjust premiums and the death benefit within limits, but its cash value depends on credited interest that can change.
Can I skip a premium payment?
Some policies allow it if there's enough cash value to cover costs. Skipping payments can reduce cash value and increase the risk of a lapse.
Should I review my policy over time?
Yes. An annual review of your policy's statement helps make sure it's still funded the way you expect.
How often should I review a universal life policy?
At least once a year, when you get your annual statement. Asking for an in-force illustration shows whether the policy is on track.
Is indexed universal life invested in the stock market?
No. Indexed policies credit interest based on a market index, subject to caps and other limits, but your cash value isn't directly invested in the market.
Compare your options with Hollen
Not sure which type fits? Hollen can walk through term, whole, and universal life with you. See also: Term Life Insurance · Whole Life Insurance · Life insurance overview
This page is general educational information, not a guarantee of coverage, eligibility, or cost. Premiums, benefits, and features vary by policy, carrier, and state, and depend on factors like age, health, and coverage amount. Policy loans accrue interest. This is not tax, legal, or financial advice.