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Universal Life Insurance

Universal life insurance was first introduced in the early 1980′s. Unlike traditional permanent life insurance, UL offers flexible premiums as well as a flexible death benefit. Universal life also provides greater transparency as to what happens to premiums paid into the policy. Such things as cost of insurance (analogous to term insurance charges) and policy expenses are disclosed for every time period of the policy’s existence. These periods may be annually, but are usually expressed in monthly durations.

When premiums are paid, after the portions that go to cost of insurance and expenses, the balance of the amount collected by the insurance company is invested on behalf of the policy owner. So long as this "coffee pot" doesn't run dry, the policy owner can pay into it at virtually any pace over time. He can pay a level amount throughout life, pay a lot in a given year, or even skip paying altogether. Money is taken out of the policy either through loans or withdrawals during the lifetime of the insured.

With traditional universal life insurance, the portion of each premium that is available to be invested is placed in the General Account of the carrier. Life insurance company General Accounts are mostly invested in government securities, AAA bonds, and to some degree in mortgage loans.

In addition to traditional universal life, there is also variable universal life and indexed universal life (IUL).


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