Universal Life Insurance

When most people think of life insurance, they’re likely thinking of term life insurance, which is the most common variety of life insurance policy. However, it’s not the only type commonly used — universal life insurance is another policy structure that is relatively popular in the United States. Universal policy holders might have different future goals than term policy holders, or different needs while they’re alive and paying into the plan.

So what is universal life insurance? Essentially, it’s a more flexible type of life insurance that also offers users a savings component. This flexibility comes from the fact that while term life insurance premiums and payouts are fixed through the term of the policy, premiums and payouts associated with universal life insurance packages can vary from one year to the next.

A typical universal life insurance policy holder is allowed to make premium payments above and beyond the minimum account necessary to keep the policy active and valid. This extra amount adds to the policy’s actual cash value, and accrues interest that is actually tax-deferred under current laws. This enables policy holders to use universal life packages as savings vehicles, which is one of the main benefits of universal life insurance.

This savings over and above the minimum account value can be accessed at any time and used for many things: collateral for loans, extra income, mortgage or education payments, even as a reserve of cash that allows you to skip payments on your premiums. The best universal life insurance plans give policy holders the flexibility to pay extra when they have it, while simultaneously saving for a rainy day when they might need extra cash or a break on their deductible payment.