Universal life insurance is permanent life insurance. As long as premiums are paid, a death benefit is paid to the beneficiary. These policies are different from whole life insurance policies because they offer the policy owner some flexibility to change the premium payments and death benefit. The death benefit may be increased subject to insurability or decreased, and the premiums can also be increased and decreased as well as skipped. Universal life insurance policies may be purchased with one of two different death benefit options. One is a level death benefit and the second is an increasing death benefit. Although premium payments are flexible, a universal life policy will usually have a target premium which is the suggested annual premium payment. The target premium for some companies is sufficient to keep the policy in-force to age 100; however, this is not guaranteed. Universal life insurance policies also accumulate cash values on a tax-deferred basis. These cash values tend to be interest-sensitive and can be used for a variety of options:
- The policy can be surrendered at anytime for the cash surrender value.
- The policy owner can take out a loan and use the cash value as collateral.
- The policy can be changed to a reduced amount paid-up whole life policy.
- The cash values may be used to pay premiums for a certain period of time.
- The cash surrender value can be used to supplement retirement income.
Universal life insurance policies are valuable because they can provide permanent protection and accumulate cash values that can be used for emergencies or for meeting specific objectives. For those who prefer flexibility, universal life insurance provides more options than whole life insurance.
The cash values of universal life insurance policies may be affected by a life insurance company's future performance. Some factors that influence a life insurance company's performance are expenses, mortality experience, and investment performance.
