May be covered
- Permanent death benefit that can be adjusted within policy limits
- Cash value accumulation tied to current interest rates (with minimum guarantee)
- Flexible premium payments — can pay more or less within policy limits
- Ability to adjust death benefit amount (within limits and with underwriting)
- Tax-deferred cash value growth
Common exclusions
- Death benefit may be reduced if cash value is insufficient to cover policy costs
- Policy can lapse if cash value is depleted and premiums are not paid
- Suicide within the contestability period
- Death resulting from material misrepresentation on application
- Variable sub-account losses may reduce cash value in variable universal life policies
Universal life insurance is a type of permanent life insurance that offers more flexibility than whole life — particularly around premium payments and adjusting the death benefit over time.
Key characteristics
Flexible premiums: Within policy parameters, you can vary the amount you pay. Pay more to build cash value faster; pay less during leaner times (as long as cash value covers the policy’s internal costs).
Cash value: Accumulates based on credited interest rates set by the insurer, typically with a guaranteed minimum floor. Rates are generally tied to market interest conditions.
Adjustable death benefit: In many universal life policies, you can increase or decrease the death benefit over time (increases typically require underwriting).
Risk to be aware of
The flexibility of universal life can be a double-edged sword. If you consistently pay minimum premiums and cash value growth is lower than expected, the policy can lapse — even after years of payments — if the cash value is depleted and you stop paying enough to cover internal costs.
This is a key difference from whole life, where premiums are guaranteed to keep the policy in force.
Types of universal life
- Traditional universal life: Interest-credited based on current rates with a guaranteed minimum
- Indexed universal life (IUL): Cash value growth tied to a stock market index (e.g., S&P 500), with a floor and a cap
- Variable universal life (VUL): Cash value invested in sub-accounts similar to mutual funds; subject to market risk
Coverage, pricing, and availability vary by provider, plan, age, health, and policy terms. This guide is educational information only.