How universal life works
Your premiums go into the policy’s cash value. Each month, the insurance company takes out the cost of insurance and fees and credits interest to what’s left. As long as there’s enough value to cover the costs, the policy stays in force.
Because premiums are flexible, it’s important to review the policy every year. Paying too little for too long can cause the policy to lapse.
Types of universal life
| Type | How the cash value grows | Good for |
|---|---|---|
| Guaranteed universal life | Little or none; the focus is a guaranteed death benefit | Lifelong coverage at a lower cost than whole life |
| Indexed universal life | Interest linked to a stock market index, with a floor and a cap | People who want growth potential with some protection |
| Variable universal life | Invested in funds you choose; value can go down | Experienced investors comfortable with risk |
Things to know
- Projections shown at sale are not guaranteed unless labelled as guaranteed.
- Costs can rise as you get older, so check the policy each year.
- Variable universal life is a security and is sold with a prospectus by appropriately licensed representatives.
Common questions
What’s the difference between whole life and universal life?
Whole life has fixed premiums and guaranteed cash value growth. Universal life lets you adjust premiums and the death benefit, and its cash value growth depends on the policy type.
Can a universal life policy lapse?
Yes. If the cash value isn’t enough to cover monthly costs, you’ll need to pay more to keep it. Guaranteed universal life policies avoid this as long as you pay the scheduled premium.