A Guide To Universal Life Insurance.

Shawn Plummer

CEO, The Annuity Expert

A popular type of permanent life insurance is called universal life insurance (UL). It comes with cash value, and you can set the premiums to what you want. If you don’t spend as much on premiums, some money will come from your cash value in the policy.

A UL policy is designed for people trying to build a nest egg without going into the higher income or permanent need.

What is universal life insurance?

You can use the cash value to pay your premiums when you have universal life insurance. The policy lasts your whole life and pays out a tax-free death benefit when you die.

There are two parts to a UL policy:

  • The death benefit
  • The cash value

The cash value can earn interest and isn’t taxed while it grows. You can use the money in your cash value when you are alive to

  • Pay the life insurance premiums
  • Withdraw cash
  • Take out a loan

The money you put into a cash value grows and is not taxed until you take it out.

How does universal life insurance work?

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Universal life insurance, also known as adjustable life insurance, is flexible. You can change the amount of your monthly payments and the death benefit. That way, even if you can’t pay, there will be enough money to pay for it. But it would be best if you waited until it has accrued enough interest before you do this.

But if the investments made with your policy do not make money, you will have to keep paying for your insurance. If you use up all of the money in the policy and still do not pay for it, then your insurance policy will lapse (expire).

Some people choose UL insurance for their estate. This coverage provides a permanent payout and is used to cover taxes and the cost of leaving money to their legacy.

Cash Value

When you have a UL insurance policy, the interest you earn is based on how well the market performs, like the S&P 500, and are limited on the upside potential. However, you can not lose money in a down market.

How much does universal life insurance cost?

Because universal life insurance policies have cash value, they cost more to buy. But it is hard to know how much you will pay in premiums before your policy builds up any cash value. The cost of UL insurance is not fixed.

Universal Life Insurance Calculator

Types of universal life insurance 

Pros and Cons


For high net worth individuals who need an additional tax-deferred savings vehicle, universal life insurance comes with some key advantages:

  • Your whole life, you will have this insurance.
  • You can earn interest that does not dip below 0%.
  • The money that it collects is tax-deferred.
  • You can decrease your monthly payments if you want to do that.


  • It is more expensive than term life insurance.
  • Cash value growth potential is capped.
  • The cost of the insurance increases as you age.
  • If you use the cash value to pay for premiums, there may be no money left to pay for your insurance coverage, and the policy expires.

Who should buy universal life insurance?

Universal life insurance products are usually for people with a lot of money or who need to make sure that the government does not take their money. However, it can be good to use this if you have maxed out all of your investments and want more money without going into a higher tax bracket.

Universal Life Insurance Quotes

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A Cheaper Alternative To Life Insurance, Universal and Index Universal

A cheaper alternative for consumers seeking primarily to leave a death benefit, level term life insurance offers coverage at a fraction of the cost.

Shawn Plummer

CEO, The Annuity Expert

I’m a licensed financial professional focusing on annuities and insurance for more than a decade. My former role was training financial advisors, including for a Fortune Global 500 insurance company. I’ve been featured in Time Magazine, Yahoo! Finance, MSN, SmartAsset, Entrepreneur, Bloomberg, The Simple Dollar, U.S. News and World Report, and Women’s Health Magazine.

The Annuity Expert is an online insurance agency servicing consumers across the United States. My goal is to help you take the guesswork out of retirement planning or find the best insurance coverage at the cheapest rates for you. 

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