What is Universal Life?
Universal Life Insurance was created to provide more flexibility than Whole Life Insurance by allowing the policy owner to shift money between the insurance and savings components of the policy. Premiums, which are variable, are broken down by the insurance company into insurance and savings, allowing the policy owner to make adjustments based on his or her individual circumstances.
For example, if the savings portion is earning a low return, it can be used instead of external funds to pay the premiums. Unlike Whole Life Insurance, Universal Life allows the cash value of investments to grow at a variable rate that is adjusted monthly.
Along with providing a death benefit, Universal Life Insurance also incorporates a savings vehicle. In short, it is like combining a term life insurance policy with a tax-deferred interest accumulating savings account. One benefit of purchasing a Universal Life Insurance policy is that besides accumulating a tax-deferred savings, one may not have to pay premiums during the entire policy. If money to pay the death benefit and other related costs accumulates in the tax-deferred savings portion of the policy, then premiums may eventually not be required to keep the policy in force.