What is Universal Life Insurance

Universal life insurance policies permits you to either pay a single large premium payment when your policy is starting or have your premium paid in multiple payments that are between a certain price range.

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Universal life policies are a variation on Whole Life, and offer similar (but not identical) features, including the ability to build up “cash value.” This cash value is the accumulation of your premiums after allowances for company expenses and claims.

Unlike Whole Life policies, the death benefit, savings component and premiums can be altered over time. Another difference is that universal life insurance allows the policyholder to use the interest from the cash value to help pay premiums over time.

Under a universal life insurance policy, the insurance company establishes an interest rate hurdle for that policy. If the insurance company’s overall investment portfolio beats the minimum interest rate, the excess earnings can be applied to the cash value of a policy. The potential (but not guarantee) to earn more than a minimum interest rate is the major difference between universal life and whole life.

Since Whole Life policies combine investment, tax minimization, and estate planning capabilities with life insurance benefits, evaluating them requires professional advice tailored to you.