What is universal life insurance?

Q:

What is universal life insurance? How is it different from whole life insurance?

A:

Universal life insurance is a great product that is sort of a hybrid between whole life insurance and term life insurance.

Essentially, the premiums are usually lower than a whole life insurance policy, leaning more toward the cost of a term policy. But unlike term insurance, it also has a cash value accumulation aspect and does not expire, much like with a whole life insurance policy.

Essentially, payments for a universal life insurance policy are broken up into two parts:

  1. The first part works like a term policy and is used to maintain coverage. As long as you're paying for this part, your coverage will exist and continue to be in force. Your policy will be ready to provide coverage should you ever need it. This portion is flexible and fluctuates based on the insured's coverage needs. It can be paid for using the returns from the second portion of the premiums paid.
  2. The second part is the cash accumulation portion of the policy. Any payment in excess of the coverage maintenance portion goes towards investments that grow in cash value. The insured can also withdraw funds from this portion without affecting the death benefit.

Universal life insurance is a great choice for you if you value flexibility and find the investment aspect appealing. But definitely speak with a local adviser who can assess your financial situation and goals before purchasing one of these policies (see Insurance as an Investment? It's Called Permanent Insurance to learn more).

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Written by Jacques Wong
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Jacques grew up around the insurance industry and began actively participating in 2013. Since then, he has gotten a Level 2 license, won an Insurance Council of BC award in 2015 for academic excellence in the insurance licensing courses and educates insurance professionals through PNC Learning.   Full Bio