What is universal life?
Universal life is a form of permanent life insurance that provides a death benefit and a cash accumulation feature. Premium flexibility and the ability to alter death benefit levels distinguish universal life from term insurance. It is important to review policy illustrations carefully, since projected values rely on interest credits, fees, and premium payments.
How the policy works — key components
- Face amount: The amount paid to beneficiaries at the insured's death.
- Premiums: Payments you make; some portion covers cost of insurance and fees, with remainder credited to cash value.
- Cash value: An account within the policy that earns interest according to the policy contract.
- Cost of insurance: Monthly charges that increase with age and affect net cash value.
- Surrender charges and fees: Early withdrawals or policy lapses can trigger charges that reduce value.
Who should consider universal life
Universal life may be appropriate for individuals who need long‑term death benefit protection and want a policy that can adapt over time. Common reasons to choose universal life include estate planning, ensuring children or a business partner are supported, or creating a conservative savings vehicle inside an insurance contract. It is not a fit when short‑term protection at low cost is the priority.
Costs to expect and how to compare
Compare illustrations from carriers on a level basis: same insured age, same face amount, same assumed interest rate. Pay attention to guaranteed vs. non‑guaranteed values. Ask for a breakdown that isolates administrative fees, cost of insurance, and assumed crediting rate so you can assess sustainability under different scenarios.
Practical checklist before applying
- Collect recent medical history and list of medications for underwriting accuracy.
- Request a full illustration and a guaranteed values page.
- Compare projected cash value at 10, 20, and 30 years under conservative assumptions.
- Confirm surrender schedule and any early policy charges.
- Discuss flexibility: ability to increase or decrease premium and death benefit.
Frequently asked questions
Can I borrow from the cash value?
Yes. Most universal life policies permit policy loans. Interest accrues on outstanding loans and unpaid loans reduce the net death benefit. Understand loan interest terms and whether unpaid loan interest compounds.
What happens if I stop paying premiums?
If the cash value covers the monthly expenses, the policy may remain in force for some time. However, if cash value is exhausted, the policy will lapse and coverage ceases. Review a lapse notice and options for reduced paid‑up insurance or reinstatement terms.
How are rates set?
Credit interest rates on cash value may be declared by the carrier and can vary. Some policies include a minimum guaranteed rate while others depend on the insurer's credited rate. This affects long‑term performance and should be compared across carriers.