| a type of insurance in which the payments of the insured are placed in an investment fund, earnings from which pay the premium on term life insurance while any remainder continues to increase the policy's value. |
Universal Life Insurance
A type of flexible permanent life insurance offering the low-cost protection of term life insurance as well as a savings element (like whole life insurance) which is invested to provide a cash value buildup. The death benefit, savings element and premiums can be reviewed and altered as a policyholder's circumstances change. In addition, unlike whole life insurance, universal life insurance allows the policyholder to use the interest from his or her accumulated savings to help pay premiums.
Investopedia Commentary
Universal life insurance was created to provide more flexibility than whole life insurance by allowing the policy owner to shift money between the insurance and savings components of the policy. Premiums, which are variable, are broken down by the insurance company into insurance and savings, allowing the policy owner to make adjustments based on their individual circumstances. For example, if the savings portion is earning a low return, it can be used instead of external funds to pay the premiums. Unlike whole life insurance, universal life allows the cash value of investments to grow at a variable rate that is adjusted monthly.
Related Links
Buying Life Insurance: Term Versus Permanent
Taking The Surprise Out Of Long-Term Care
See also: Cash Surrender Value, Death Benefit, Life Insurance, Permanent Life Insurance, Term Life Insurance, Whole Life Insurance
universal life insurance