Universal Life Insurance is a form of permanent life insurance that pairs a cash value account,
which can accumulate interest, with flexible premium payments and death benefits. Policyholders
have the added advantage of adjusting their premiums and death benefits to align with their
changing financial needs. The accumulated cash value can also be utilized to cover premium
payments, which further enhances the policy’s flexibility.
Advantages of Universal Life Insurance
This policy type provides several key benefits:
Flexibility in Premiums and Death Benefits: Policyholders can tailor their payments and coverage to
better fit their evolving personal and financial situations.
Cash Value Growth: Funds in the cash value account may earn interest, which can increase the
policy’s value over time and can be borrowed against for financial needs.
Growth Potential: The performance of the cash value component is often linked to the insurer’s
investment portfolio or a specific interest rate, presenting a potential for appreciation.
Disadvantages of Universal Life Insurance
However, there are complexities and risks to consider:
Policy Complexity: This policy is more intricate than term life insurance due to the investment
component and adjustable features.
Variable Premium Requirements: Flexibility comes with the caveat that premiums may need to be
increased to sustain the policy if the cash value underperforms.
Sensitivity to Interest Rates: Fluctuating interest rates can affect the growth of the cash value,
impacting the overall benefit and performance of the policy.
