Universal Life Insurance

Universal life insurance is a form of life insurance plan that continues for the whole time that you are alive. This plan is also called cash value life insurance due to the savings account built up into the plan. A share of the premium amount you pay each month transfers into the savings account. When the cash value built by you goes outside a definite limit after a specific time, you can encash it.

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A universal life insurance policy is different from a basic life insurance plan because it is more flexible in respect of the death benefit payout, which you can decrease or increase depending on your medical condition and your preferences. In order to increase the sum assured amount that is your life cover, you have to go through a complete medical test that assures the bank that you are in good health condition. Reducing the coverage simply means paying lesser premiums, which can be done without surrendering up the whole policy if you pay a small amount as surrender charges. Read on to more about universal life policy in detail: 

How does UIL (Universal Life Policy) Work? 

The premium amount paid by you for maintaining the Universal life insurance plan is divided into 2 parts. Principally one part goes to your life insurance plan and the other part transfers into your investment and savings. 

This plan offers you flexibility as you can select how much amount of premium you are required to pay. The minimum premium amount is fixed at the insurance price. Any extra amount goes to the savings account and these deposits increase at the rate that is decided by the insurer. Sometimes, this evolution can be impacted by market fluctuations and conditions. 

Insurance advisors suggest to pay the maximum amount of premiums as possible in the starting years so that you can accrue a substantial cash value. You can further use this to pay your premiums in the future at later stages in life. 

Features of Universal Life Insurance (UIL)

Universal life insurance is a type of permanent life insurance that provides different features in common with a whole life plan: 

  • Permanent life coverage 

  • Payment of a death benefit 

  • Receives a cash value 

  • Flexible payments, benefits, and terms 

  • Changing coverage for changing requirements 

  • More economical than whole life insurance plans 

What are the Types of Universal Life Insurance? 

Following are the types of Universal Life Insurance: 

  • Indexed Universal life (IUL Insurance): In this, the cash value is solely dependent on the performance of the market. The cash value increases when the market is doing good. Also, if the market performance is not that good, the value decreases. Thus, it affects your premium rates.

  • Guaranteed Universal Life Insurance (GUL Insurance): In Guaranteed Universal Life Insurance, the rate of interest is fixed and the rates of premium stay the same for the full period of the policies. It is majorly less risky in comparison to other types and is effective until the premium amounts are being paid on time. GUL Insurance plan is inclined more towards providing life coverage and it's less on building the cash value. 

  • Variable Universal Life Insurance (VUL Insurance): Variable life insurance is one of the types of permanent life insurance. In a variable universal life plan, apart from offering life coverage, this plan invests part of a cash value into a mutual fund. In this, the interest earned by you is based on the market condition and then you are charged a fee for this. 

Benefits of Universal Life Insurance Policy 

Buying a life insurance policy has the following benefits: 

  • You receive the dual benefit of savings and insurance 

  • You are not required to pay premiums for various investment and insurance plans all at one time.

  • Universal life insurance plans come with the flexible option of payment. You can decide how much premium amount you wish to pay above the sum that is fixed for life coverage. 

  • Most plans provide an adjustable death benefit which means that the amount can be increased or decreased depending on the requirements of the policyholder. 

  • These plans provide you with a guaranteed interest rate and thus the policy’s cash value is guaranteed to keep growing. 

  • Universal life insurance plans provide adjustable coverage for altering requirements. The payouts and premium amounts can be adjusted with time to consider inflation. 

There are extra fees related to these types of plans. The saving aspect of universal life insurance has some risks. Study thoroughly before buying these policies and do not buy any plan without carefully going through T&Cs. 

Disadvantages of Universal Life Insurance Policies 

The only main disadvantage of universal life insurance is that if the plan starts performing poorly, growth cannot be expected and you might end up spending a large amount of money as premium amounts to keep the cash value to the highest possible and support results with the risk of high surrender rates. However, if flexibility is one of your preferences, you must choose universal life insurance.


  • What is the difference between Universal life insurance and whole life insurance? 

    A. The main difference between universal life insurance and whole life insurance is that UIL insurance offers more flexibility. Life assured can sometimes differ his/her death benefits and premium payments with universal life. Whole life insurance offers set premium payment options. Both types of plans have cash value and you can attach add-ons to either one. 
  • Does Universal Life Insurance expire? 

    A. UIL generally guarantees a price up to a certain age like 100. If you cross this age, you can still keep the policy active but will have to pay a large increase in the rate. A universal life policy will terminate if you stop paying the premium prices and the cash value depleted. 
  • What happens to the cash value in a Universal life insurance plan at death? 

    A. Cash value is used during your lifetime. Once you pass away, any cash value typically reverts to the insurer. Your nominees/beneficiaries receive the death benefit, which is the policy’s face value minus any unpaid plan withdrawals and loans.

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