Universal Life Insurance
Universal life insurance is a type of permanent life insurance coverage, offering both a death benefit and a cash value component. The policy will remain in effect as long as you pay your premiums or remain alive.
Policyholders have a certain level of flexibility compared to other types of permanent life insurance policies in that you can lower your premium payments or change your death benefit amount. In addition, the cash value component offers opportunities to earn more interest. On the other hand, the value can go down over time as well.
Cash value component earns interest based on a money market rate of interest. Some types of universal policies have a rate that’s tied to a market index. What you earn will increase your cash value, helping you pay your premium. Lowering your monthly payments can be useful if your financial situation changes.
Types of Universal Life Policies
Indexed Universal (IUL)
This type of policy allows you to earn interest that’s tied to the performance of index funds such as the S&P 500, though your insurer may limit your rate of return. Or, you may be able to choose to earn all or part of your cash value in a fixed-rate account.
Guaranteed Universal (GUL)
Sometimes called no-lapse guaranteed universal life insurance, this type of policy offers a guaranteed death benefit and premiums that stay the same for the life of the policy. Though often included under the permanent life insurance umbrella, GUL policies usually have an end date that's selected at the time of purchase. Policyholders typically choose an advanced age (95, 102, etc.) and the policy will remain active until that point. Unlike other permanent life policies, a GUL policy may have little or no cash value
Reasons to Consider Universal Life Insurance
Can be used as an investment vehicle
Can adjust coverage amounts, premium payments, and death benefit
Premium payments, death benefit, and coverage amounts can be adjusted.