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Universal Life Insurance

Universal life insurance is a permanent life insurance policy with investment aspects and flexible policies. Universal life insurance rates vary depending on the person, and any increased death risks will increase your universal life insurance rates.

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Eric Stauffer is a former insurance agent and banker turned consumer advocate. His priority is to help educate individuals and families about the different types of insurance they need, and assist them in finding the best...

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UPDATED: Jul 17, 2020

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For most people, life insurance is an integral part of planning for the future.  Although it’s never fun to think about what might happen to your family after you’re gone, planning for that eventuality is important.  You want to ensure that your loved ones are well cared-for and that lingering debts and funeral expenses do not place any undue hardship on them.  You may also want to leave behind some money that could go toward improving your family’s life, whether by paying off a home mortgage or covering the costs of a child’s tuition.

While any insurance policy can provide these benefits, some policies offer additional perks as well.  Permanent life insurance policies, such as whole life and universal life, couple the benefits of life insurance with a long-term investment vehicle.  Universal life is not for everyone, however, so doing your research before buying such a policy can help you ensure that you’re making the best choice for your family.

How Does Universal Life Insurance Work?

In order to understand universal life insurance, it helps to discuss the other types of policies available: term and whole.  Term life insurance is the simplest form.  In a term policy, you buy protection for a predetermined amount of time.  If you die at any point during that term, your beneficiaries receive the face value of the policy.  If you live to the end of the term, you lose all the money paid into the policy and must buy new insurance if wish for coverage to continue.

Whole life insurance is a permanent policy.  Instead of paying for a specific term, you purchase the policy and pay premiums for life.  As long as you continue to pay your premiums, you will be insured.  Additionally, a portion of your premiums are invested on your behalf, and you share the dividends with your insurance company.  This gives your policy cash value, which can be borrowed against or liquidated.

Universal life insurance is very similar to whole life.  It’s a permanent life insurance policy with an investment aspect.  One important difference between a universal and whole policy is that universal policies are more flexible.  In a whole life policy, you are locked into a specific rate and face value for the duration of your contract.  In other words, your death benefit and premium amounts will never change.  In a universal life insurance policy, however, you can control both of these things.  This allows you the freedom to modify your policy as needed to keep up with your changing lifestyle.

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Cash Value vs Face Value

Your policy’s face value is the death benefit amount that will be awarded to your beneficiaries.  For example, a policy with a $100,000 face value would give a guaranteed payout of $100,000 when its policyholder died.  The higher the policy’s face value, the higher its premiums will be.

The cash value refers to the amount of additional money invested in the policy.  This figure will generally grow over time if you do not remove any funds from the policy.  Upon death, the cash value of the policy will be paid out alongside its face value.  This means that you can invest money into a universal life insurance plan as an easy way to pass money to your heirs without it being included in the rest of your estate.  You can also use your accumulated cash value to pay off your premiums, which allows a well-aged policy to pay for itself.

What Does Universal Life Insurance Cost?

Like all insurance policies, universal life rates vary from one person to the next.  Anything that increases your risk of dying will cause your rates to increase:

  • Obesity
  • Smoking
  • Alcohol usage
  • Preexisting medical conditions
  • Family medical history
  • Dangerous career or hobbies

Before you obtain any type of life insurance policy, you will need to get a thorough health examination.  The results will affect the cost of your premiums.  Rates will also vary between insurance companies, so be sure to get several quotes before settling on any particular insurer.  If you’re accustomed to term policy rates, be aware that universal life insurance tends to be much more expensive.

Should I Get It?

There are many benefits to universal life insurance, but it’s not the right choice for everyone.  The expense of a universal policy may make it less attractive to someone operating on a tight budget.  As an investment vehicle, life insurance is not as effective as other types, and some financial experts advise against universal life insurance for that reason.

In general, there are three primary reasons to get a universal life insurance policy:

  • You have substantial assets and wish to give some money directly to your beneficiaries without those funds being tied up in your estate after death.  The cash value of your policy can act as a vehicle for this money and ensure that a good amount is left to your beneficiaries immediately.
  •  You want to buy a policy when you are young and healthy and not need to worry about qualifying for life insurance later in life.  Although universal life premiums will be higher than term premiums for a similar policy, over time you may be able to reduce your payments by using the policy’s cash value.
  •  You want your policy to have a cash value.  If the idea of losing the premiums you’ve paid to your term life policy bothers you, universal life insurance may be more appealing.  The ability to borrow money from the policy later can also be useful.

Ultimately, it’s up to you to decide whether a universal life insurance policy is the right fit for you and your family.  Once you’ve made your choice, get quotes from several insurance companies to find a policy that will fit your needs and your budget.

About Eric Stauffer

Author: Eric StaufferI am a former insurance agent and banker turned consumer advocate. My priority is to help educate individuals and families about the different types of insurance they need, and assist them in finding the best place to get it.


  1. I am 66 years old and have had Universal insurance since 1985 and paid a set planned periodic premium amount which I pay on a yearly basis.

    Now the insurance company has contacted me stating that my policy has reached a point where my current planned periodic premium and my accumulation value balance are insufficient to keep my policy in force.

    And if I would like to retain my coverage I would have to increase my periodic payment based on current non-guaranteed interest rates and insurance charges.

    This increase is four times more than what I am paying for the insurance that I bought in 1985.

    Is this legal? and what are your thoughts?

  2. I am 33 years old and looking to get a ULI. I read your article about why term is better than whole life. It makes sense if you know how to invest, but I have zero knowledge on that. I don’t know anything about stocks, etc. and would not have a clue where to start. For someone in my situation, would it still be unwise to get a ULI? My expectations of the ULI are just to make sure that my mortgage can get paid off and/ or leave a decent amount of money to my children.

    • Hi CTelle,

      There are many options for investing that take most of the guess work out. For example, look into Robo-Advisors. You answer a few questions about what your goals are, how old you are, when you would like to retire, etc. and it creates an automatically adjusting portfolio that all you need to do is deposit money into. They typically use the modern index fund investing principles, and are very low cost.

      There are lots of options out there for investing, and a ULI policy is one of the more expensive with a lower upside potential.

      Eric Stauffer

  3. My daughter has purchased a ULI policy. She didn’t have a good understanding of what she was buying. Is there any way for her to cut her losses and dump this policy without a huge penalty?

  4. I am 57 years old and I am thinking about purchasing either whole life or universal life insurance for 10 years. I am going to be having a natural burial. I have already purchased my cardboard coffin and the shroud to be buried in. This burial is cheaper then the cost of a funeral burial today. All you have to do is provide the grave in the natural burial facility there is no viewing no embalming. Your either buried the same day or the next day. No costly head stone just a bench or rock with your name engraved on it for your loved ones to find you and enjoy nature. How much insurance should I take out in order to make sure that my family is taken care of in the event of my passing. Who would you recommend for an insurance company?

    • Hi Irene,

      While that is a great question to be asking, its unfortunately too complicated to answer in a brief comment response. The overall plan will be heavily based on your personal circumstances, as well as those family members you wish to be taken care of.

      I would recommend sitting down with a local estate planner that is paid by the hour. It may cost a few hundred dollars, but they can look at your situation and make a recommendation that is best suited to your needs.

      Eric Stauffer

  5. If my agent printed me illustrations that showing 10 annual premiums and 11th year shows zero premium, does it mean I only need to pay all 10 annual premiums on Prudential universal protector policy, then no need to worry any subsequent year premium after 11th year? Or Prudential can come back and require me to continue paying premium beyond 11th year?

    • Hi Tiffany,

      It will completely depend on what your actual policy states. A sales agent can show you all kinds of charts and graphs, but they could be simple projections based on certain estimates of performance. If your policy states, in writing, that you only need to pay 10 annual premiums, then that is what is important. If its something they just drew out on a piece of paper, or something that says “estimates” on it, then its not guaranteed.

      Eric Stauffer

  6. I thought about getting a 30 year term insurance, but I am having second thoughts on getting whole life or universal instead. I really don’t want to risk outliving the policy if that were to happen.

    With whole or universal life, is the policy amount (say $500,000) subject to being taxed?

    • Hi George,

      Generally speaking, the death benefit on these types of policies are tax-free.

      Eric Stauffer

  7. Eric,

    I have been told that another advantage of universal life insurance is that you’re able to take out yearly loans after paying into the policy for 35 years. Doing so will supposedly provide a tax-free income source for retirement, but still retain a death benefit amount. Is this a legitimate financial instrument?


    • Hello Another A,

      I would be willing to bet you heard that from a life insurance sales agent.

      In most circumstances, universal and whole life insurance polices are greatly overpriced. Calculate what paying into a universal life insurance plan would cost for 35 years, and then check out a general retirement calculator to see what that premium would have grown into over 35 years if invested normally in the market.

      It is my belief that these products are pushed due to their high commissions, and they are ultimately a lot worse than simply buying term and investing the difference. You are paying someone (the insurance company) to do the investing for you. Its expensive.

      Eric Stauffer

  8. have you heard of Safe Money Milionaire? They sell universal life insurance. What is your take, advice on it?

    • Hello,

      I have not heard of Safe Money Millionaire before, but I can tell you in most cases that universal life insurance is not going to be a great investment. For the vast majority of people, it is a very over-priced way to get life insurance, and the promises of great investment gains almost never track what investing yourself could do.

      I can’t speak on your personal situation directly, but read my write up about Why Term Life is Better Than Whole Life Insurance. While whole is slightly different than universal, the underlying principle is the same.

      Eric Stauffer


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