Universal life Insurance is insurance that provides life insurance protection and a savings component.

According to IRMI, Universal life insurance is “A very flexible life insurance product that pays much higher interest than conventional whole life and allows the insured to adjust the premium and death benefits.”


This is the modern twist on the traditional whole life product. Basically the person makes payments that will exceed the amount needed to cover the mortality risk, the policyholder accumulates a cash value from the excess premiums paid.  There is an annual disclosure that shows the amount of premiums paid, the insurance benefit, expenses, credit on cash value and interest earned.

The other part of universal life to understand is the two interest rates.  One is a guaranteed minimum rate, the cash value of the policy is guaranteed to earn the minimum rate or higher.  The other is the current market interest rate.  The policy holder earns whichever rate is higher.

For most Universal life policies, the premiums payments are flexible, provided there is enough cash value in the policy.  The policy holder has the ability to increase death benefit, borrow against cash value, withdraw from or reduce cash value, or add insureds to the policy.

The appeal to insureds is the growth in cash value is tax-deferred.

There are risks to Universal life policies, the flexibility can cause individuals to miss payments, causing the policy to lapse or lose its cash value.  Also, in an environment of falling interest rates, the cash value may grow slowly, increasing the premium payments.

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Arnold Smith

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