How Does Universal Life Insurance Work

With a universal life insurance policy, you pay a monthly fee split into two parts: One covers life insurance, and the other goes into savings and investment. It's meant to be more flexible by allowing you, the policyholder, to choose how much premium you pay within a specific range.

What Is Universal Life Insurance

A universal life insurance policy is life insurance that lasts your entire life—into your 90s and beyond. It’s sometimes known as cash value life insurance. That’s because it has a savings account inside the policy. 

How much life insurance do you need? Find out with our free calculator!

You pay into this savings account whenever your insurance premium is due (the premium is the monthly cost that keeps the insurance going). If you’ve built up cash value, you’re free to take some out—as you would with a regular bank account.

Do Universal Life Insurance Premiums Increase With Age?

Because every year of your life can tack dollars on your life insurance premium, try to buy any policy you're considering before your next birthday. To ensure you receive the best rates for the coverage you're seeking, obtain quotes from two or three of the best life insurance companies you can find.

If you're still looking, consider talking to an independent agent who works with more than one insurance company like Woody's Insurance. 

Index Universal Life Insurance

Indexed universal life insurance is a type of permanent life insurance, which means it has a cash value component in addition to a death benefit. The money in your cash-value account can earn interest based on a stock market index chosen by your insurers, such as the S&P 500 or the Nasdaq Composite.

Is Universal Life Insurance Worth It?

Indexed universal life insurance works best as a combination of your retirement plan and life insurance. As a stock investment, these plans can't lose money, appealing to some investors. ... Also, indexed universal life policies can offer tax-free growth on your investment gains.

Does Universal Life Insurance Expire?

Whole life and universal life are both known as permanent policies. That means they are designed to last your entire life and won't expire after a certain period as long as required premiums are paid.

Universal Life Insurance Vs Whole Life

The main difference between whole life insurance and universal life insurance is that universal life insurance can have more flexibility. You can often vary your premium payments and death benefit with universal life. Whole life insurance has set premium payments.

But both types of policies have cash value, and you can add riders to either one.