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Universal Life Insurance Policy

The most remarkable characteristic of a universal life insurance policy is its flexibility, which is achieved by combining the best features of whole life and term life insurance policies.

Features of Universal Life Insurance

The the three basic features of a Universal Life Insurance Policy are listed below.

Flexible Premiums

Universal life insurance has flexible premiums. Under a universal policy, you are given the option to adjust your premium payments up or down each time it is due, subject to minimum and maximum amounts set by the insurance company. A percentage of each premium you pay is applied to your universal life insurance policy’s cash value, making it more valuable when higher premiums are paid—just like a whole life insurance plan. However, you have the option to make low premium payments—just as you would in a term life policy—if your budget does not allow you to pay high premiums during certain times of the year (e.g., quarterly mortgage dues, yearly membership fees, college tuition payments, etc.).


Universal life insurance is interest-sensitive. The cash value of a universal policy builds on an interest rate that depends on current market rates. Therefore, in a bullish, fast-growing economy, the internal cash value of your universal life insurance policy will build at a faster rate than even a whole life policy would. However, during a slow economy, this feature does the reverse: it will ensure that your universal life insurance does not grow as quickly as whole life insurance would.

Adjustable Death Benefits

Universal life insurance has an adjustable death benefit. The death benefit under a universal life insurance policy is not fixed over the policyholder’s lifetime and may be adjusted annually. The advantage of this feature is that, during hard times, you need not sacrifice the equity your policy has built up even if you have to reduce premium payments. On the other hand, if you desire to increase your policy’s death benefit during good times, all you have to do is present proof of insurability (i.e., undergo a medical exam). But decreasing the death benefit of your universal life insurance policy requires no such proof.

The Perils of Universal Life Insurance

Apart from depending on the economy, all the other features seem to make a universal policy the obvious choice for everyone. Most universal life insurance policies guarantee a rate of return with one exception – if your policy does not accumulate any cash value.
Can this really happen? Yes, if one or any of the following occurs:

  • The insurance company increases its administrative expenses.
  • The insurance industry’s (and the nation’s) mortality assumptions change.
  • The insurance company’s investment portfolios under perform.
  • Premium payments are insufficient to cover death benefits.

Since, most of these perils depend on the soundness of the insurance company you select to hold your hard-earned money, do some research and purchase a universal life insurance only from a company that has built a solid reputation (and enough assets to pay claims) throughout the years.

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