Universal Life Insurance

What is universal life insurance?

Universal life insurance is a type of permanent life insurance that offers the flexibility to change your death benefit and adjust your monthly premiums. Like whole life insurance, universal life coverage can last for your lifetime and build cash value that you can borrow against while you're alive. The difference between whole life and universal life insurance is that, as your financial situation changes, you can increase or decrease your premiums, or death benefit payout amount. You can also skip premium payments as long as the cash value will cover the cost of your insurance for that month.

Why Buy Universal Life Insurance?

With a universal life insurance policy, you can adjust or skip premiums and change your beneficiary's payout amount. In contrast, the premiums and death benefit amount of a whole life insurance policy stay the same. If you're looking for a more flexible type of permanent life insurance, then a universal life policy may suit your needs.

How does universal life insurance work?

Universal life insurance covers you for your lifetime as long as you pay your premiums. It's sometimes referred to as cash value life insurance because the policy has a savings account built into it. As the savings component grows, you gain more flexibility, such as the ability to change your premium amounts.

What are the benefits of universal life insurance?

There are several advantages to a universal life insurance policy:

Flexible premiums

As the cash value component of your policy builds, you can adjust your premium payments and even use it to pay your monthly premium. Eventually, your cash value policy could build into a zero-cost policy, where all premiums can be paid from the built-up cash value and keep the same payout amount (death benefit).

Length of universal life coverage

Unlike term life insurance, which only lasts for a set period, a universal life insurance policy lasts for your lifetime as long as you continue to pay your premiums.

Tax-free growth

The payout to your universal policy's beneficiary is typically tax-free, as is the growth within your policy's cash value component.

Loan collateral

You can borrow money from your insurer using the cash value as collateral. Keep in mind that policy loans are subject to interest rates that are set by your insurer. Learn more about life insurance loans.

What does a universal life insurance policy cover?

Your beneficiaries can use your universal life policy's death benefit as they wish, though many families use their funds to pay for large expenses or life events. Some common expenses include:

Loss of income: Your coverage can make up for the loss of your income, helping your family pay bills and everyday living expenses.
Mortgage costs: Your family can use your death benefit to pay the mortgage or even pay it off early, depending on your coverage amount.
Estate planning: You can use your coverage to leave money behind for your adult children, or to take care of any remaining debt you have. Learn more about life insurance and estate planning.
Educational needs: Your spouse or children can use your policy's funds to pay tuition and other educational expenses.

Is universal life insurance right for me?

Universal life has unique benefits, like flexible premiums. However, it's more complicated than term or whole life so it's best suited for those who have changing financial needs over time and want to be able to adjust their coverage and premiums. For example, one key difference between whole and universal life insurance is that the interest on a universal life policy's cash value varies based on market conditions (though you receive a guaranteed minimum interest rate). So your policy's cash value is less predictable but has the potential to grow faster.