Like all permanent life insurance, it has a built-in cash value that grows over time and earns interest. You can take out policy loans against the cash value, pay your premiums, or even use your coverage for cash to supplement your income in retirement.
Cash value earns interest on the basis of a cash market rate of interest. For some universal policies, it may also be tied to a specific market index. Every decision you make will improve your cash value and help you to pay your premium. It can be beneficial to reduce your monthly payment if your financial circumstances change.
Some forms of universal life insurance also offer a cash value component. You can take money out of cash value via a withdrawal or loan. When you die, the insurance company will reduce the death benefit payout to your beneficiaries by the amount of any leaves or outstanding loans. But for some buyers, accessing cash value is more important than a total payout to beneficiaries later.
Indexed universal Life Insurance (IUL) allows for you to earn interest linked to the performance index funds such the S&P 500. Your insurer may limit your return, however. Another option is to have all or part cash value earned in a fixed rate account.
Universal life is flexible to get a permanent life insurance policy and build cash value. The premiums are flexible: you can raise or lower payments within certain limits set by the insurance company. It can be a solution to cover people with variable incomes because the cash value also allows them to make withdrawals and policy loans.
Doing so will reduce your cash value. If there isn't enough, you will have to make the difference, or your policy will be canceled.