Universal Life Insurance is a type of permanent life insurance

Universal Life Insurance is a type of permanent life insurance that offers more flexibility than whole life insurance. Universal life insurance policies provide a combination of guaranteed lifelong coverage, an investment option, a cash value that earns an interest along with flexible payment options. Universal life insurance offers a way to maintain your insurance coverage and also build wealth for your beneficiaries, which is exempt from tax.

Universal life insurance is unique in that it allows you to choose the insurance premiums and investment options based on your investment goals and risk tolerance. Read about AiA Life Insurance

The policy holder’s premium is split into three components, one towards the insurance premium, the second for deposit into an investment account and the balance known as account value, earns an interest, based on the investment option that has been pre-selected. Policyholders have the option to have more than one investment account within their universal life insurance policy, so will need to specify in what ratio premiums are to be assigned to their different accounts. The premiums may change if changes are made to the policy.

Policyholders may choose to pay their premiums monthly, annually, or over a timeline they choose. Generally for monthly premiums no extra funds are paid, but when paid annually, the excess funds will go towards the investment component of the policy.

However, if premiums are skipped the premium amount is transferred from the investment account to cover the cost of life insurance and the policy will remain in force. If the investment account’s value can no longer cover the premiums, the policy will lapse.

The cash value of your policy is different from the investment account of the policy; it is adjusted for redemption or withdrawal fees. Cash withdrawals reduce the death benefit payable and may also be subject to taxation.

The second method is by seeking a loan against the policy’s investment accounts cash value as collateral from the insurer. Policy loans may also be subject to taxation.

The third method is to obtain a line of credit from another financial institution by using the policy as collateral. There is no taxation of the policy as you are not withdrawing from it. However, if the policyholder passes away while the loan is still outstanding, first, the lender is repaid from the policy proceeds and the balance is then given to the beneficiaries.

Pros : Provides guaranteed lifelong coverage, while giving you options to invest and build wealth for your beneficiaries within the insurance policy.
Missing a payment could mean you do not have to forfeit the policy as some amount if available in the cash value account and be temporarily transferred to cover the premium.

Cons: Premiums are more expensive than term life insurance.
The investment income if borrowed from the policy is taxed.