Universal Life Insurance

Universal life insurance contracts differ from traditional whole life policies by specifically separating and identifying the "mortality," "expense," and "cash value" parts of a policy. Dividing the policy into these three components allows the insurance company to build a higher degree of flexibility into the contract. This flexibility allows (within certain limits) the policy owner to modify the policy face amount or premium, in response to changing needs and circumstances.

Many universal life policies have several different provisions by which the accumulated cash value can be made available to a policy owner during life, without causing the policy to lapse.

Common Uses of Universal Life

Universal Life policies are useful for policy owners who expect their needs to change over time. Within certain guidelines, a universal life policy can be modified by changing the death benefit or premium payments. Some common uses are:

  • Family Protection: To provide the funds to support a surviving spouse and/or minor children, or to pay final bills such as medical or other estate expenses, as well as federal and state death taxes.
  • Business Planning: Because of its flexibility, universal life insurance is often used for many different business purposes, such as insuring key employees, in split-dollar insurance arrangements, and funding nonqualified deferred compensation plans. Business continuation planning often involves using universal life as a source of funds for buy-sell agreements.
  • Accumulation Needs: Some individuals will use the cash value feature of universal life as a means of accumulating funds for specific purposes, such as funding college education, or as a supplemental source of retirement income.
  • Charitable Gifts: To provide funds for a gift to charity.