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Universal life insurance is also called adjustable life insurance because of the flexibility it offers. You have the liberty to reduce or increase your death benefit and pay your premiums at any time in any amount (subject to certain limits) once there is money in the account.4
When you make a payment to your universal life insurance plan, part of it goes into an investment account, and any interest accrued is credited to your account. The interest you earn grows on a tax-deferred basis, increasing your cash value.5
You can adjust the death benefit when needed, increasing it (often subject to a medical exam) if your circumstances change, or lowering it to reduce premiums.6 Alternatively, you can use your cash value to pay premiums as long as there is enough money in that account.4
The ability to adjust the face value of your coverage without surrendering your policy is an attractive feature of universal life coverage. As your financial circumstances or responsibilities change, you can increase, decrease—or even stop—premium payments.
Another perk is the ability to partially withdraw or borrow funds from the cash value. However, you must not make repeated withdrawals as this may reduce the cash value amount and leave you little in the time of need.
The main downside of universal life insurance is the interest rate, which is often dependent on market conditions. If the policy performs well, there are chances of potential growth in your savings fund. On the other hand, if it performs poorly, the estimated returns are not earned. Another negative feature: the fees. Surrender charges may be levied at the time of terminating your policy or withdrawing money from the account.
The right life insurance for you will depend on your family structure and financial situation as well as your appetite for risk and desire for flexibility. In addition to universal and whole life, you can also explore other forms of life insurance such as term, group life insurance, and more.
Regardless of which type of policy you decide on, be sure to compare the companies you're considering as well to ensure you're getting the best whole life insurance or the best universal life insurance possible.
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Coverage and availability varies by risk type, state and insurance carrier. Not all coverages are available as specified and there are many variances among carriers.
