universal life


Life insurance which combines the low-cost protection of term insurance with a savings component that is invested in a tax-deferred account, the cash value of which may be available for a loan to the policyholder. Universal life was created to provide more flexibility than whole life by allowing the holder to shift money between the insurance and savings components of the policy. Additionally, the inner workings of the investment process are openly displayed to the holder, whereas details of whole life investments tend to be quite scarce.
Premiums, which are variable, are broken down by the insurance company into insurance and savings. Therefore, the holder can adjust the proportions of the policy based on external conditions. If the savings are earning a poor return, they can be used to pay the premiums instead of injecting more money. If the holder remains insurable, more of the premium can be applied to insurance, increasing the death benefit. Unlike with whole life, the cash value investments grow at a variable rate that is adjusted monthly. There is usually a minimum rate of return. These changes to the interest scheme allow the holder to take advantage of rising interest rates. The danger is that falling interest rates may cause premiums to increase and even cause the policy to lapse if interest can no longer pay a portion of the insurance costs.

Use universal life in a sentence

Though seemingly more expensive the Universal Life Policy we purchased provides a cash value that was not available in the Term Policy.

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When he fell on hard times, Mr. Jones tapped into his universal life policy in order to get some much needed cash flow to continue receiving medical treatments.

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Gerber Foods offers a wonderful Universal Life Insurance for new parents. It is an investment in their child's future. The policy grows over time and may be an investment which they can draw from to pay for college expenses.

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