What is Universal Life Insurance?

Universal life insurance is a little tricky term when it comes to understanding its implications.

People sometimes mistake it with whole life insurance.

However, there are some functional differences in the two policies that make a significant difference in the outcomes.

What Is Universal Life Insurance?

what is universal life insurance

Universal policy or popularly known as UL policy is a permanent type of life insurance option where the policyholder pays an additional amount of money (other than the premiums) which is linked to their savings account.

The company creates two simultaneous accounts for the policyholder- one is the savings account and another one is the insurance premiums account.

When you deposit monthly premiums – the amount goes first into your savings account. From there the cost of insurance is withdrawn and transferred from the company end to the insurance account.

You will keep receiving interest on the money in your savings account that will keep on accumulating over a period of time.

As time grows the amount of savings, as well as the interest earned on it, will be sufficient enough to pay for your life insurance premiums.

Practically you will not have to pay the entire insurance premium on your own when you grow.

This is a protection plan that not only safeguards your term insurance premiums but also helps you in building up a substantial amount of wealth.

There are certain benefits that are linked to this plan. These will make the concepts clearer and you will be able to know how a universal policy is more beneficial than the whole life insurance policy.

Read Also: Graded Benefit Whole Life Insurance.

The Benefits of Universal Life Insurance Policy

universal life insurance

Easy Loan Accessibility

As we explained above that the money deposited by the policyholder is divided into two segments.

One part of the money which is paid towards the standard fixed monthly payment of the cost of life insurance policy will go into the insurance account and the other part will remain in the savings account.

Cash gets accumulated over a period of time and the interest earned on it helps in the wealth build-up.

Now in any case of an emergency situation in the future, you may feel the need to borrow money then you can easily avail some loan on the cash value that has built up in your savings account. You can even withdraw this cash value.

However, if the cash value or the loan amount is not being deposited in the given time frame or the policyholder dies in this period then the number of death benefits will get affected.

The promised amount may get reduced by the amount of loan being withdrawn by the policy bearer while being alive.

Hard Times Cover

The finances in families keep on fluctuating to less and more during the course of time.

At times the situations become challenging and people find it difficult to manage the payment of life insurance premiums.

Such situations are mostly seen to be occurring when some major family functions are catered or some sudden mishap occurs in the family.

In such situations, your cash value in the savings account comes to your aid.

The cash value gets utilized by the company for payment of as many premiums as possible.

However, you need to be vigilant that the cash value doesn’t get fully utilized unnoticed. You need to plan things in a way so that you can start paying the premiums at the earliest.

The piece of advice is that during the hard times too even if you are not able to make the full payments try to keep adding some money to your savings account for the cash build-up.

This will help you to avail yourself some more time to come back to normal life routines.

Double the Benefits, Interest Rate Earned

The money that is deposited in your savings account draws a significantly good rate of interest. In most cases, it is equivalent to the prevailing standard savings account rate of interest in the market.

However, we have noticed that some of the companies offer somewhat higher rates of interest to allure their customers into buying the universal life policies.

FYI it should be known that the rate of interest on the savings account is not fixed but are subject to market conditions.

There are companies that offer protection on this plan considering the “worst-case scenario” in the market.

They have a “projected plan” for the minimum performance guarantee for the safeguarding of their customer’s money as well as faith.

Given the above-stated of this policy people often tend to jump to the conclusion.

We would like to bring forth one really important aspect related to the policy which is associated with the first benefit that we have listed.

The loan accessibility or the cash value withdrawal looks like one really optimistic point here.

But we have seen the cases where people exceed their drawing limits and go debunk at the time of its repayment.

This kind of behavior will serve no good purpose for the policyholder or the beneficiaries.

In any worst case if the policyholder is not able to make the payment in time due to death or any other circumstance the beneficiaries are going to suffer majorly. It affects the aim of the policy.

So, always try to keep your withdrawals- if at all needed- to the minimum possible levels. – IT IS JUST A WORD OF CAUTION!


The policy is a double protection insurance plan. The two accounts that are created to be linked with this policy helps in not only safeguarding our term life insurance policy but also help in building up wealth.

The stringent rules on its withdrawal make it sure that we tend to save in every possible condition.

The rules ensure that you save radically and the nominees of the policy gain primarily at the end of the policy term.

Those who have long-term goals of savings should invest in the policy.

Linda Chavez

I'm a burial & senior life insurance expert, independent agent, Founder & CEO of Seniors Life Insurance Finder. I have been working in this sector since 2004 and established my own company in 2014. I have a team of seven members, and we are trying hard to share the knowledge we've gathered. We know how difficult often it is to find an affordable policy. Hence, we are doing our best to help you.