There are many types of universal insurance policies. Understanding what you're purchasing is crucial. There are many differences in their features and costs.
Specific universal life insurance policies also include a cash value component. The cash value can be withdrawn or borrowed. The death benefit payout to beneficiaries will be reduced by the amount of any outstanding loans or leaves. However, the cash value is more important for some buyers than a payout to beneficiaries.
Some universal life policies also have a cash value component. You can withdraw or borrow money from your cash value. Your insurance company will reduce your death benefit payout by the amount owed or left. However, some buyers find that accessing cash is more important than a complete payout to beneficiaries.
Universal life insurance (UL) is one of the two main types of permanent life insurance (the other is whole life insurance). Like real life, a universal policy can provide lifetime protection while building cash value with tax advantages. UL also allows you to raise or lower premiums within certain limits so that it can cost less than full coverage. But it also offers fewer guarantees than whole life because if you make minimal premium payments for too long, it can impact cash value growth and the size of your death benefit.
A UL policy provides the insured with the same benefits and permanent protection as whole life insurance but also offers the flexibility to adjust for variable earnings. Depending on your policy and the life insurance company, you may be able to invest your cash in different market-based investment options. This can give you more growth potential. Universal life, on the other hand, offers lower cash value guarantees.
Indexed universal insurance (IUL), a type of universal life insurance, allows you to earn interest tied to index funds like the S&P 500. However, your insurer may limit the rate of return. You may also achieve all or part of your cash value in fixed-rate accounts.