Introduction to Universal Life Insurance

Universal Life Insurance is one of the most flexible of all Life Insurance Policies. This is one of the things that contribute to its popularity as both a risk management tool and an investment vehicle.

Universal Life Insurance was developed out of whole life policies and is considered one of the most flexible of all permanent Life Insurance formats. The idea behind Universal Life is that the clients account grows as premiums are paid into it. The basic cost of insurance, are then invested. Interest earned on the investment of the excess funds is added to the account balance.

In most cases, the amount of interest is tied to some financial index rather than related to direct investment purchases, but regardless, each period the premium payment plus the new interest on the account less the COI is added to the account balance. This allows steady growth throughout the life of the policy. It is even possible to miss a premium payment without affecting the status of the policy. In this case, the COI for the period is simply subtracted from the account balance to cover the premium.

Of course, so far this sounds like a mutual fund investment rather than an Insurance Policy. The difference is that there is a death benefit. This amount is determined by the clients needs and its cost is reflected in the COI value. If the policy holder dies at any time during the life of the policy, the entire death benefit is paid to the beneficiaries. The amount of the death benefit may be increased or decreased during the life of the policy. This is one of the major advantages of Universal Life Insurance.
The adjustment in death benefit and the resulting changes in the Cost of Insurance portion of the premium is determined by the Insurance Company and will depend on the insurability of the client, but at least the client has the option to make this adjustment without purchasing an entirely new policy or an additional one.

Since a cash value is growing in the policy, it is possible to receive loans based on the cash value during the life of the policy. This makes funds available for emergency situations without losing the basic protection of the Insurance. There are certain tax benefits available and withdrawal options when a certain age is reached. These are a bit complex and beyond the scope of this introduction. The important thing to understand about Universal Life Insurance is that is combines investment, savings, and protection into one package. Most Insurance Agents believe in its benefits and will be glad to explain the options to potential customers.


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