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.
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 insurance can be described as a permanent type of insurance. A universal life policy covers the insured for their entire life, provided they pay their premiums and comply with any other conditions. Universal life insurance, like many permanent policies, combines a savings component ("cash value"") and lifelong protection. The policy's death benefit will be paid to your beneficiaries upon death.
In other words, the cash value component earns an interest rate based on either a money rate of interest, or for certain universal policies, a rate linked with a market indicator. You can increase your cash value by making any changes that will make it easier to pay your premium. You can reduce your monthly payments if your financial situation has changed.
Consider the risk you are willing to take when purchasing universal life insurance. Do not believe in any promises of enormous investment returns that may not be true. Make sure you examine all parts of the policy illustration, not just the projections.
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.