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Understanding universal life insurance

Allen Wastler

Posted on September 09, 2022

Allen Wastler is a former financial journalist with over 30-years of experience, including time at CNBC, CNN, and Knight-Ridder Newspapers.
Understanding universal life insurance
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Detail what benefits universal life insurance has in common with other types of permanent life insurance.

Describe how universal life insurance can offer policyowners greater premium flexibility.

Explain why “universal life can be a good choice for someone fairly conservative looking to protect themselves into retirement.”

If you are considering life insurance, one of the choices you’ll likely encounter is universal life insurance (UL).

This kind of life insurance offers some financial flexibility in addition to protection. That may be advantageous for certain policyowners. But it is important to understand its features before deciding if it is right for you.

Part of the permanent life insurance family

To begin with, UL is a type of permanent life insurance. This is life insurance that offers a death benefit throughout a policyowner’s life, provided the premiums are paid for a specified period. Permanent insurance is distinct from term insurance, which only provides coverage for a specified time period.

Further, permanent life insurance offers:

  • Tax-deferred growth of cash value.
  • The ability to borrow against the policy’s cash value.

Beyond these basics, permanent life insurance can offer a variety of features that may or may not be suitable for certain types of policyowners.

The UL difference

Whereas other kinds of life insurance policies require premiums to be paid on a stated schedule, universal life insurance allows for greater premium flexibility. A policyowner may adjust the amount they pay each year — or even month to month — in premiums, as long as there is enough cash value to cover the cost of insurance and administrative charges of the policy.

Why would flexible premium payments be desirable? Some people pay the maximum premium possible into a policy for the first years of coverage, building up the policy’s cash value. That cash value can then be used for some future need, such as college tuition or to pay premiums if their income shrinks in retirement. (Related: What premium plan will work for you?)

“Universal life can be a good choice for someone fairly conservative looking to protect themselves into retirement,” said J. Todd Gentry, a financial professional with Synergy Wealth Solutions in Chesterfield, Missouri.

Some universal life policies offer what is called a “secondary” death benefit guarantee. You can pay a premium for a certain number of years and that will ensure your coverage will remain in place for life, even if the account value runs out. These types of policies are often used to provide for final expenses, to ensure a financial legacy for children or grandchildren, or for the care of a special-needs loved one.

For example, someone could purchase a universal life insurance policy at age 50 and plan on paying a set premium for 15 years (to age 65) which would guarantee the policyowner a death benefit for life. If, for some reason, the policyowner paid less than the planned premium, the guaranteed period would be reduced. However, the policyowner would still have the option to pay more in subsequent years so the policy will provide the lifetime guarantee.

Another specific type of universal life insurance is indexed universal life insurance, which credits returns on the cash value based on market performance.

Also, like other types of life insurance, UL policies can come with a variety of added features, called riders, specific to the issuing carrier. These can include provisions to accelerate the payment of a portion of the death benefit to help meet health care needs in the event of a terminal illness or the ability to waive premiums in the event of a disability. (Related: Understanding riders)


The flexible premiums offered by UL policies may be attractive for certain individuals. But they aren’t for everyone. For instance, the premium flexibility can result in a policyowner having to pay more than the planned premium if they have not maintained a certain level of payments in earlier years.

Potential policyowners should understand additional features offered by variable universal life insurance and whole life insurance before making a decision. In many instances, a financial professional can provide guidance about the choices.

Learn more from MassMutual …

9 questions to ask when shopping for life insurance

Is group life insurance enough?

When life insurance morphs


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The information provided is not written or intended as specific tax or legal advice. MassMutual and its subsidiaries, employees, and representatives are not authorized to give tax or legal advice. You are encouraged to seek advice from your own tax or legal counsel. Opinions expressed by those interviewed are their own and do not necessarily represent the views of MassMutual.