Universal Life Insurance

Universal Life Insurance

A life insurance policy that combines features of term life and whole life insurance. That is, a person pays a premium and, in exchange, receives at least a guaranteed death benefit (as with term life insurance). Additionally, one has a cash value account that may be invested and may offer a higher return for the policyholder. A person may use the funds in the cash value account to pay premiums, increase the death benefit, or even serve as collateral for a loan. Premiums are higher for universal life policies than for other forms of life insurance.

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universal life insurance

A combination of term life insurance and a tax-deferred savings plan paying a variable return. This combination was developed during the early 1980s when interest rates rose to very high levels and caused the public to view regular whole life policies unfavorably.

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Universal life insurance. Universal life insurance is a type of permanent insurance that offers flexible premiums and a flexible death benefit.

Your tax-deferred cash value account accumulates at least the guaranteed rate of interest, but may accumulate at a higher rate if market rates are higher than the guaranteed rate.

You can use the money in your cash value account to pay premiums if there's enough available. And you can also increase the amount of the death benefit without having to qualify for the additional protection. This alternative allows you to build inflation protection into your insurance.

As with other permanent policies, you may be able to borrow against your cash value account, though any outstanding loan reduces your death benefit. You also get a portion of the cash value back, minus fees and expenses, if you end the policy.

However, universal life is a more complex product than straight life and the premiums are higher for a comparable death benefit.