What is universal life insurance?

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Asked July 13, 2010

1 Answer

Universal life insurance is a popular form of life insurance policy that has benefits for the policyholder as well as a guaranteed cash payout when that person dies. Basically, universal life insurance is a type of whole, or permanent, life insurance policy that can be set up a number of ways. Because premiums are tax deferred, this type of life insurance makes a popular form of savings account for the policyholder.

As a savings account, a universal life insurance policy is excellent. Premiums are paid into the account, which accrues interest, providing an ever larger account which the policyholder can freely borrow from. As with other types of whole life insurance the policyholder is allowed freedom in selecting the investments to which premiums are applied, and the gains from such investment could be phenomenal or devastating.

Another benefit of a universal life policy is the option to make the policy self-sustaining. Once the policy is in effect, the policyholder could elect to deposit advance premiums for a period of time, and allow the policy to generate its own premium payments over time. This method reduces the amount of savings available to the policyholder, but it allows the policy to pay for itself, removing the burden of policy upkeep from the policyholder.

Because it is a whole life policy, universal life insurance is best purchased early in life and allowed to mature. For instance, purchasing a universal life insurance policy when the person is in their 20's allows the policy time to mature, and provides them with a more substantial savings tool later in life. For those who are already in their later years, it may be more economical to purchase term life policies to cover expected expenses after death.

Answered July 13, 2010 by Anonymous

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