Universal Life Insurance

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Universal life insurance is one of the two main varieties of permanent life insurance. Unlike term life insurance, a universal policy can be maintained indefinitely.

What’s the difference between universal life insurance and whole life insurance (the other variety of permanent insurance)? Whole life insurance is characterized by its uncompromising guarantees; universal life insurance is characterized by its flexibility, transparency, and affordability.

Universal life insurance is an instance of cash value life insurance. “Cash value” is an interest-bearing account of real money. Its primary role is equity for your policy—at any time, the policy owner can cash in his/her policy and walk away with its cash value.


The death benefit, premiums, and cash value are perpetually adjustable in the hands of the policyholder. In capable hands, that makes universal life insurance a more useful investment vehicle.


With other types of life insurance, you pay a certain, required premium, and you never see what the insurance companies do with the money. With universal insurance, though, there is no required premium—you pay whenever you want, however much you want. How does the insurer take its fee, then? Instead of requiring periodic payments from you, it makes periodic charges against your cash value account—a charge for administration, a charge for COI, a charge for loading, etc. You see just what expenses your policy is incurring. Understanding your policy’s expenses is useful because universal insurance’s flexibility permits you to make changes that will change the costs of your coverage.


It’s true that universal life insurance is not nearly as cheap as term life insurance, but it is much cheaper than whole life insurance. How can it be cheaper and grant the policyholder so much more freedom at the same time? In the real world, “freedom” equates to “responsibility,” and it is by transferring responsibility from the insurance company to the policy owner that universal life insurance cuts costs. Whole life insurance guarantees a fixed rate of cash value growth, a fixed death benefit, and a fixed rate. By altering or discarding these guarantees, life insurance companies can reduce the cost of the life insurance product.