What is Universal Life Insurance?

What is Universal Life Insurance – Overview

Universal life insurance is lifelong or permanent insurance that stays by your side. It is also known as your side adjustable life insurance. Unlike other types of insurance, Universal Life Insurance has the best flexibility. What is universal life insurance?

About Universal Life Insurance:

Universal Life Insurance is a type of life insurance that provides lifelong coverage till you live. This type of insurance offers a death benefit and potential cash value growth while the policy is in force.

Universal Life Insurance offers flexible premium payments and the option to adjust the policy’s cash value investment strategy.

How Does Universal Life Insurance Work?

As stated above, Universal Life Insurance provides lifelong protection. However, there are a few terms that you must know before investing in this type of insurance. Let’s understand the most common terms used by insurance companies for Universal Life Insurance.

1. Premiums: Premiums for Universal Life Insurance policies are adjustable. You can adjust your premium according to your income source, as the premium-paying term is fully flexible. It is the total amount that you pay for the policy.

2. Interest: If the company earns more than it offers against your policy, the extra earnings against your policy will be credited to your account.

3. Cost of Insurance: The cost of insurance, which covers the death benefit, is automatically deducted from the policy’s cash value.

4. Administrative Charges: The administrative charges are used to manage your policy. A specific amount is deducted from your policy every month to manage the policy and its information.

5. Surrender Fees: The surrender fees are deducted from the policy if you surrender it before it ends. Gain proper information about the surrender value and loans you borrow while the policy is in force.

3 Types of Universal Life Insurance

You may want to consider three more types of universal life insurance while covering your life through the policy. Here, we have covered all three types of insurance that will help you choose the right one to get maximum benefits.

1. Guaranteed Universal Life Insurance

Guaranteed Universal Life Insurance offers a more predictable cost structure than other universal life insurance types, not increased flexibility. It provides an assurance amount that you will get. To keep the policy in force, you will be asked to pay regular premiums yearly or monthly as per the premium terms.

2. Indexed Universal Life Insurance

The Indexed Universal Life Insurance helps you grow your funds while your policy is in force. You can invest your funds in a market index fund. It also works like a guaranteed universal life backed by the insurance company. This is incorrect as the statement misrepresents how the cash value in an Indexed Universal Life Insurance policy can fluctuate based on index performance, not the premium fluctuation.

3. Variable Universal Life Insurance

Variable Universal Life Insurance allows for potentially higher cash value growth through investments in various accounts but also comes with higher risk. Your funds will be invested so that you can earn maximum funds. However, funds are not guaranteed as some of your investments might not work as expected.

Investments are made in money market accounts, indexes, and stocks. Investors may mix up their investments with multiple platforms to earn maximum benefits. If you know about investments and have prior experience, choose this type of insurance.

Pros and Cons of Universal Life Insurance

Universal Life Insurance

Universal Life Insurance – Pros and Cons


1. Flexibility

Universal Life Insurance provides great flexibility when paying your premiums. Since the policy provides lifelong coverage, you can increase or decrease the number of premiums and coverage according to your income source. Once you pay your first premium, you can pay the next premium at any time. There are no fixed premium amounts in universal life insurance for the policyholder.

2. Potential for High Returns

Indexed and Variable Universal Life Insurance policies offer the potential for higher returns on the cash value component due to their link to market indexes and investment options, respectively.

3. Controlled Investment

You have the control to invest or not invest your funds in this policy. You can keep some of your funds for investments that will earn you extra benefits while the remaining funds will remain as they are. You can keep the other money as a fixed deposit or a one-year term deposit to keep earning interest.

4. Flexible Death Benefits

Universal life insurance comes with the flexibility to increase the amount of your death benefit. You can increase your death benefits anytime you want during the policy term.


1. Requires Monitoring:

You need to keep an eye on the funds invested through your policy. If you do not pay attention, the chances of lowering your funds are high. Ensure you regularly monitor your policy and the total funds in your policy.

2. High Premiums

While the insurance cost within the policy may increase as you age, the flexibility of premium payments in Universal Life Insurance allows for adjustments based on your financial situation. The premiums for this policy are higher and depend upon your income sources. If your income is decent, only invest in this policy. Otherwise, you must borrow money to keep the policy in force to pay your premiums.

3. Risks are high

Since your money is invested in different platforms, the risks associated with your policy are high. Since the market fluctuates, the cash value of investments within certain types of Universal Life Insurance policies can also fluctuate. You have to keep the risk high while investing in this type of policy. The interest rates against your funds are dependent upon the market.

The Bottom Line:

Should you buy Universal Life Insurance? – Only if you want lifelong coverage. Universal life insurance is best for you if you want hassle-free life coverage with flexible premiums.

You need not worry about the regular premiums and premium terms; however, you must monitor the policy funds more frequently as they are associated with many risks. Go through the details in this article before you go with the Universal Life Insurance policy.

See Also

State Farm Medical Insurance

What is Short Term Medical Insurance

Short Term vs Long Term Disability

Is Long Term Disability Taxable

Signs That You Will Be Approved for Disability

Current Version
March 13, 2024
Updated By
Andrea Morales G.

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