Universal Life Insurance

Permanent life insurance with flexible premiums and a cash value account charged monthly for the cost of insurance.

Overview

Each month the insurer deducts mortality charges and expenses from the account, and the remainder earns interest at a credited rate, often tied to a minimum guarantee of 2 to 4 percent. Policyholders can raise or skip premiums within limits and adjust the death benefit, making universal life more adaptable than whole life. The danger is underfunding: if the account cannot cover rising mortality charges at older ages the policy can lapse, sometimes after decades of payments. Guaranteed no lapse versions add a secondary promise that coverage survives if a stated premium is paid. Illustrations depend on current assumptions, so buyers should stress test the guaranteed columns rather than the optimistic ones.