What is universal life insurance?
Universal life insurance is a type of permanent life insurance that offers the flexibility to change your death benefit and adjust your monthly premiums. Like whole life insurance, universal life coverage can last for your lifetime and build cash value that you can borrow against while you're alive. The difference between whole life and universal life insurance is that, as your financial situation changes, you can increase or decrease your premiums, or death benefit payout amount. You can also skip premium payments as long as the cash value will cover the cost of your insurance for that month.
How does universal life insurance work?
Universal life insurance covers you for your lifetime as long as you pay your premiums. It's sometimes referred to as cash value life insurance because the policy has a savings account built into it. As the savings component grows, you gain more flexibility, such as the ability to change your premium amounts.
What are the benefits of universal life insurance?
There are several advantages to a universal life insurance policy:
Flexible premiums
As the cash value component of your policy builds, you can adjust your premium payments and even use it to pay your monthly premium. Eventually, your cash value policy could build into a zero-cost policy, where all premiums can be paid from the built-up cash value and keep the same payout amount (death benefit).
Length of universal life coverage
Unlike term life insurance, which only lasts for a set period, a universal life insurance policy lasts for your lifetime as long as you continue to pay your premiums.
Tax-free growth
The payout to your universal policy's beneficiary is typically tax-free, as is the growth within your policy's cash value component.
Loan collateral
You can borrow money from your insurer using the cash value as collateral. Keep in mind that policy loans are subject to interest rates that are set by your insurer.
What does a universal life insurance policy cover?
A universal life policy can help pay for certain life events and other large expenses, including:
- Loss of income
- Mortgage costs
- Estate planning
- Educational needs
Is universal life insurance right for me?
Universal life has unique benefits, like flexible premiums. However, it's more complicated than term or whole life so it's best suited for those who have changing financial needs over time and want to be able to adjust their coverage and premiums.
Learn more about life insurance
Progressive Answers helps break down the basics of life insurance.
