You can only borrow against cash. If you pay off the entire amount within your policy's lifetime, the loan amount won't be taxable. If the loan amount (including interest) exceeds cash value, your policy may end.
Indexed universal life insurance (IUL) allows you to earn interest tied to the performance of index funds such as the S&P 500, though your insurer may limit your rate of return. Or, you may be able to choose to earn all or part of your cash value in a fixed-rate account.
Universal life allows you to build cash value and a permanent insurance policy. You can adjust the premiums to increase or decrease payments, provided that you do not exceed certain insurance company limits. Because the cash value allows you to withdraw and take out policy loans, providing coverage for people with variable incomes can be an option.
Universal life insurance might be the right choice for you if you're in the market for a life insurance policy with lifelong coverage. Universal life insurance can offer a guaranteed death benefit, allows you to tap into the policy's cash value, and may give you the flexibility to adjust your premium payments and death benefits.
When considering universal life insurance, think about how much risk you are willing and able to take. Don't believe anyone when they promise you huge investment gains. You should carefully examine the guarantee portions of the policy illustration.
Don't forget to keep in mind that you can lose your cash value. You will have to make up any difference or your policy could be cancelled.
When you pass away and your policy is still active, your beneficiaries will only receive the death benefit – the insurance company keeps any funds above this amount. Beneficiaries typically receive a single tax-free payment or monthly or annual installments. Some insurers offer annuities as an additional option – these are contracts where the insurer agrees to pay the beneficiary a one-time fee or periodic payments for a predetermined time.