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what is universal life insurance

Universal life insurance is a type of permanent life insurance that offers both death benefit protection and the opportunity to build cash value. It is called “universal” because it provides flexibility in terms of the premiums you pay and the amount of coverage you have.

Here’s how universal life insurance works:

  1. You choose the amount of coverage you want, which is known as the death benefit.

  2. You pay premiums to the insurance company. A portion of these premiums goes towards the cost of providing the death benefit, and the rest is set aside in a cash value account.

  3. The cash value account earns interest over time, and the policyholder can choose to borrow against the cash value or withdraw it if they need the money.

  4. If the policyholder dies while the policy is in force, the death benefit is paid out to the designated beneficiary.

Universal life insurance is often more expensive than term life insurance, which only provides death benefit protection for a specific period of time. However, it provides more flexibility in terms of premium payments and the ability to build cash value, which can be a valuable feature for some policyholders.