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Discover universal life insurance.

Learn about the different types of life insurance to find the coverage that works best for you.

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This content has been reviewed by an experienced licensed SelectQuote life insurance agent to ensure accuracy. Learn more about our editorial standards.
by Sara LeBlond Meyer last reviewed August 2022

What is universal life insurance?

For many people, universal life insurance is a bit of a mystery. You may have heard the name, but don’t know how it works or what it costs. At SelectQuote, we can help you understand universal life insurance and how it differs from whole life insurance and other insurance types.Universal life insurance is a form of permanent life insurance that has a primary benefit of lasting your entire life. The policy may also accrue cash value to pay for premiums. The value accrues and earns interest as you pay monthly premiums, lending the opportunity to also act as a savings account. With universal life insurance, the interest rate earned on the cash value is subject to change, as compared to whole life insurance where the interest rate is fixed.

The Basics of Universal Life Insurance

Universal life insurance coverage can last for your entire life, so when you purchase a policy, you’re covered as long as the premiums are paid. Much like a whole life insurance policy, a portion of your universal monthly premium may go toward a cash value. For this particular type of life insurance policy, the cash value earns a variable interest that can eventually be used to pay for some of your monthly premium.

Types of Universal Life Insurance

There are two main types of universal life insurance: indexed universal life insurance and guaranteed universal life insurance.

1. Indexed universal insurance’s cash value is tied to the performance of a specific index. Each insurance provider typically has its own selection of available indices. This means an indexed universal policy has the potential of high returns, but can also be riskier.
2. Guaranteed universal life insurance won’t lapse if the cash value is zero. Guaranteed universal typically has one of the lowest price tags for permanent coverage given the no or low cash value component.

Life Insurance Retirement Plan

Another benefit of some universal life insurance policies is to use them as a retirement tool. These policies—known as Life Insurance Retirement Plans (LIRPs)—allow you to overpay your premiums and borrow against or withdraw the cash value of your policy as regular income in retirement. A LIRP can be an effective retirement strategy if you’re maxed out on other retirement contributions or need to provide long-term or permanent care for dependents after you die.

One downside of universal life insurance is the cost. Premiums are typically higher than the more popular life insurance option, term life insurance. There can be economic risks associated with universal life insurance when it comes to value, making it one of the more complex insurance products to understand and use.

Key Advantages of Universal Life Insurance

Lifetime Coverage – Universal life insurance and whole life insurance both fit under the category of permanent life insurance, which means they both offer lifetime coverage as long as premiums are paid. Universal life insurance can potentially be less expensive than whole life.

Flexibility – A universal life policy is more flexible than any other type of life insurance. Although premiums tend to be high, you get to determine what premium you pay between the minimum and maximum set amount and can adjust your death benefit based on cash value. Additionally, if your cash value can cover the cost of your premiums, you can let them! Keep in mind…if you use it to help cover your premiums, your policy value goes down, potentially reducing the death benefit and causing your premiums to go up.

Additionally, as your cash value grows, you can use it to cover the cost of your premiums. Keep in mind: if you use it to help cover your premiums, your policy value goes down, potentially reducing the death benefit and eventually causing your premiums to go up.

Learn more about the key advantages of universal life insurance.

Things to Consider about Universal Life Insurance

Unpredictable Value – Once you reach a level of value specified by your insurance company, you can withdraw on the cash value (with interest) to pay for expenses. You can also allow the value to accrue to where you can skip premium payments. However, the cash value is not guaranteed.

Potentially Variable Premiums – If you withdraw from the cash value of your policy and need to replenish it when you’re older, your premium amount could be much higher than you budgeted for or can afford.

Cost – While universal life insurance is less expensive than whole life insurance, it costs more than term life insurance. Term life is often a more affordable life insurance option that allows you to purchase insurance for a specific period of time. For most people, the benefits of term life insurance are worth exploring.

Frequently Asked Questions (FAQs) about Universal Life Insurance

Is universal life insurance a good investment?

If you’re looking for permanent coverage, universal life insurance can be a smart investment as it’s typically less expensive than whole life insurance but has similar benefits.

Which is better: term life insurance or universal life insurance?

Term life insurance is typically the most affordable and popular form of life insurance, with the ability to meet the needs of many. While universal life insurance has a higher cost, it does provide lifetime coverage (as long as the premiums are paid). Which policy type is best differs from person-to-person, but SelectQuote can help you compare the two and make the right choice for your personal situation.

What happens when a universal life insurance policy expires?

A universal life insurance policy is a form of permanent life insurance, which do not expire. This type of insurance is meant to provide lifetime coverage. However, the policy will lapse if the premiums are not paid.

Find the best life insurance for you with SelectQuote.

Understanding the complexities of different life insurance types can be overwhelming, but we can help. We’ll learn more about your needs and help suggest life insurance policies that meet them. Then, in just minutes, we’ll provide unbiased quotes from the trusted insurance companies we partner with to find the right coverage for you.