Chelsey Tucker graduated with a Bachelor of History degree from Metropolitan State University in 2019. She now writes about insurance with her specialty being life insurance and has been quoted on Help Smart Phone and MEL Magazine.

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Dan Walker graduated with a BS in Administrative Management in 2005 and has been working in his family’s insurance agency, FCI Agency, for 15 years. He is licensed as an agent to write property and casualty insurance, including home, auto, umbrella, and dwelling fire insurance. He’s also been featured on sites like

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Reviewed by Daniel Walker
Licensed Auto Insurance Agent

UPDATED: Mar 19, 2020

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Universal life insurance is a life insurance policy that comes with an investment option. There are different types of life insurance products that you can buy, but a universal life insurance policy actually builds cash value and offers flexibility as well.

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Life insurance policies vary from fixed terms to end of life. All life insurance policies pay out a death benefit to your beneficiaries, but not all of them work as an investment product at the same time.

Universal life insurance policies invest a part of your premiums in various money markets so that you can earn a return on your investment.

The cash value that builds in your portfolio can be used in different ways. Sometimes it can be used to pay your premiums and other times the money can be used to pay for different needs during your retirement. There are different kinds of universal life insurance policies, so get different quotes and compare the benefits of each one.

Guaranteed Cash Value in a Universal Life Insurance Policy

When you buy a universal life insurance policy you are guaranteed a certain return on your money. No matter what happens to the market while your money in invested in it, the insurance company is obligated to honor your insurance policy.

This means if you are guaranteed a return of 5% and the stock market performs with only a 1% return, you will still receive your guaranteed investment. The better the market performs the more cash value your policy will build.
There are other points about cash value that you should be aware of:

  • Usually the cash value is used to pay for the premiums. In a no lapse guaranteed universal life insurance policy, your policy is still in force even if there is not enough cash built up to pay for the premiums.
  • Since the premium payments are flexible in these kinds of life insurance policies, you do not have to make the minimum payment each month if you are unable to do so. However, some policies can terminate if you continue to make less than the minimum payments over a long term basis.
  • The cash value that builds is on a tax deferred basis, so it is an enticing investment option for many people. You do not have to pay taxes on the money while it is in your account and being used to pay for your premiums. You will only pay taxes on it at the time you withdraw the funds.

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Death Benefit Options of a Universal Life Insurance Policy

Since universal life insurance builds cash value, there are a couple of options for death benefits. Your beneficiaries can be paid based on the death benefit and the cash value amount or on the contract value plus the cash value amount.

Whichever type of death benefit option you choose it will affect the cost of your premiums, so it is a good idea to get quotes for both kinds. Compare universal life insurance policies to see which one gives you the benefit you want.

Premiums on a Universal Life Insurance Policy

Premiums on a universal life insurance policy are unlike any other. In most policies, you have a set amount you have to pay every month. If you fail to make your payment on your life insurance policy it will lapse and you will no longer have coverage. Your premiums to date will not be refunded and you will be at a loss.

With universal life insurance policies, if you cannot afford to make your premium payment and there is not enough cash value built to pay the premium, your insurance coverage will still be in effect. There is a lot of flexibility in the premiums of a universal life insurance policy. You can pay less than your premium, you can pay just the premium, or you can pay more than the premium, and all of these options can vary month to month based on what you can afford.

A word of caution: if you continue to make less than the monthly premium on an ongoing and long time basis, then you do risk losing your universal life insurance policy. This can be avoided with a no lapse guarantee policy, but it is a good idea to make premium payments regardless of your policy.

If you can afford to make more than your monthly premium then that could be a good investment choice. The more money you pay on your premiums, the more money will that will be invested for your guaranteed return.

When you are getting ready to buy life insurance, consider the possibility of universal life insurance. It provides you with a life insurance policy that can pay for itself or earn you money for your retirement years when needed.

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