Universal Life Insurance
Flexible permanent life insurance with adjustable premiums and a cash value account that earns interest.
What is Universal Life?
Universal life (UL) insurance is a form of permanent life insurance that offers more flexibility than whole life: the policyholder can adjust premium amounts and death benefits within limits, and the cash value earns interest at a rate tied to a market index or declared crediting rate. Universal life separates the cost of insurance from the savings component, allowing the policy to remain in force as long as the cash value is sufficient to cover ongoing costs. Common variants include indexed universal life (IUL), which credits returns based on a market index, and variable universal life (VUL), which invests cash value in sub-accounts similar to mutual funds.
Example
A business owner buys a $2 million indexed universal life policy, funding it with $2,000/month in premiums. In high-income years they pay more; in lean years they reduce premiums or skip them. The cash value, credited returns based on the S&P 500 (with a 0% floor and 10% cap), grows to $450,000 over 20 years. They borrow against it tax-free to fund business investments — a strategy popular in executive compensation planning.