What is Universal Life (UL) Insurance?

There are several types of life insurance, but if flexibility is a priority, a universal life (UL) life insurance policy could be a good choice. Universal life insurance is a permanent life policy with a savings element and reasonable premiums similar to those of term life insurance. Moreover, you can usually adjust your premium payments within this type of plan, making them more flexible.¹ While Aflac doesn’t offer universal life insurance, we offer a variety of life insurance options to fit your coverage needs and budget. Read on to learn the definition of universal life insurance, how it works, and its pros and cons.

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Key Takeaways

Universal life insurance is a type of permanent life insurance plan that typically has an investment function and flexible premiums.¹
There are several types of universal life insurance, including guaranteed UL insurance, indexed UL insurance, and variable UL insurance, each with advantages and disadvantages
Aflac does not offer universal life insurance, but we do offer whole life and term life insurance policies with reasonable premiums and extensive coverage.

What is a universal life insurance policy?

Universal life insurance is a type of permanent life insurance that offers investment opportunities, along with premiums and a death benefit that are more flexible.¹ You may withdraw from the investment portion of the plan, usually paying taxes on the funds you withdraw.¹

When you pay universal life insurance premiums, they go toward the cost of insurance (COI) and the investment component, called cash value.¹ The COI is the minimum payment required to keep the policy active, and may vary based on your age, insurability, and the death benefit. Any amount you pay beyond the COI accumulates the cash value of the policy, which grows over time and allows you to borrow money against it later.

Types of universal life insurance policies

You may be able to get a universal life insurance policy for yourself, or secure a group policy through an employer. In either case, you’ll pay the COI to keep the policy active, with any excess going into the cash value. The most common types of universal life insurance are:²

Guaranteed universal life insurance: This universal life insurance policy doesn’t come with the same flexibility as other plans. It typically has minimal cash value growth and adjustable premiums.

Indexed universal life insurance: Indexed universal life insurance can grow based on the stock market index chosen by your insurance company.² You may be able to have more say in how the cash value portion of your plan will accumulate.

Variable universal life insurance: This policy lets you invest the cash value in sub-accounts of your choosing. It’s typically complex and can be a riskier universal life policy, since your cash value could decline if your investments don’t perform well.

Universal Life Insurance Advantages and Disadvantages

Some of the greatest benefits of choosing a universal life insurance policy are that you have more input on how the cash value accumulates, premiums are adjustable, and they can yield a substantial death benefit.

On the other hand, there are some disadvantages to universal life insurance too. Read on to learn about these pros and cons more in depth.

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How can I cash out a universal life insurance policy?

You can typically access your universal life insurance policy’s cash value during your life through policy loans, withdrawals, or by surrendering the policy. With a policy loan, you repay the funds over time on your own schedule. This type of loan may come with lower interest rates. If you decide to withdraw funds, this will reduce the policy’s death benefit and may be subject to taxation. Surrendering the policy can allow you to receive your policy’s cash value minus any surrender charges, but keep in mind that this means your policy will be canceled and your beneficiaries won’t receive a death benefit.

Universal life insurance policy advantages and disadvantages

Compared to other types of life insurance, there are several pros and cons to be aware of with universal life insurance:

Pros of universal life insurance

Cash value: The cash value of a universal life insurance policy can grow at a secured rate, whether pre-determined or based on a variety of investment options.¹ You can also have more say in the method that the cash value will grow than other permanent life insurance policies.

Flexible premiums: Depending on your present circumstances, you can scale the premiums up or down.¹ This can make life insurance payments less stressful if you are focused on another investment in a different phase of life.

Adjustable death benefit: How you adjust your premium payments can directly affect the value of your universal life insurance policy. We recommend you make these decisions carefully, balancing short-term and long-term goals evenly. In addition to adjusting your premiums, you can also modify the death benefit value.¹

Cons of universal life insurance

Interest rate may be lower: If your investment choice does not pay off, you will be subject to the minimum interest rate instead.¹

No guaranteed premium: Some people find peace knowing their universal life insurance premiums will not change over time. Universal life insurance may not guarantee a fixed premium payment, which may be unsettling for some consumers.

Risk to cash value: While you do have the flexibility to skip universal life insurance premium payments or scale the premiums down, it may not be the best long-term decision. If this becomes a habit, the premium payments in your plan may rise.¹

Alternatives to universal life insurance policies

Now that you know what universal life insurance is, you may be wondering how it compares to other types of policies. Some other common life insurance policies include:

Term life insurance: Pays a death benefit if you pass away within a specific policy term, usually between 10 and 30 years. This policy does not accumulate cash value and typically has lower premiums.

Whole life insurance: Permanent life insurance that has cash value, along with fixed premiums and a fixed death benefit that do not change.

Both universal and whole life insurance are permanent life insurance policies, but differ in their flexibility. Whole life insurance may be a better choice if you’re looking for a plan with fewer variables and more stability. If you want lower premiums and coverage for only a specific amount of time, consider getting term life insurance.

Get a quote for a life insurance policy

While Aflac doesn't have universal life insurance, we do offer whole life and term life insurance plans that come with reasonable premiums and extensive coverage suited for each policyholder's unique needs. Start chatting with an agent today to learn more about our policy options and get a quote.

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