Universal Life (UL) Insurance

Universal life insurance is a permanent policy, so unless you surrender your universal policy, it will last for the duration of your life. Unlike other life insurance policies, universal life policies don't have a fixed premium. While this means you may have to pay more in premiums to universal life insurance companies, the cash value component means you can cash out part of your policy during your lifetime. To find the best universal life insurance rates, compare quotes. You can use our FREE tool now.

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Rachael Brennan has been working in the insurance industry since 2006 when she began working as a licensed insurance representative for 21st Century Insurance, during which time she earned her Property and Casualty license in all 50 states. After several years she expanded her insurance expertise, earning her license in Health and AD&D insurance as well. She has worked for small health in...

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Benjamin Carr was a licensed insurance agent in Georgia and has two years' experience in life, health, property and casualty coverage. He has worked with State Farm and other risk management firms. He is also a strategic writer and editor with a background in branding, marketing, and quality assurance. He has been in military newsrooms — literally on the frontline of journalism.

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Reviewed by Benji Carr
Former Licensed Life Insurance Agent

UPDATED: Jul 19, 2021

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Quick Facts

  • Universal life insurance is a permanent life insurance policy, meaning there is no end to the policy period
  • There is no fixed premium, meaning your rates may increase over time
  • You should only cash out on your universal life insurance policy if you no longer need it or can’t afford the premiums

Universal life insurance is probably one of the life insurance terms you’ve heard thrown around before. If you are shopping for a universal life insurance policy, make sure you first understand what a universal life insurance policy is and if it is the right choice for you.

Canceling a life insurance policy isn’t as easy as canceling an auto or home insurance policy, so you want to be sure of your choice before you purchase universal life insurance.

To help you with your choice, we’ve put together a general guide on universal life insurance to answer all your questions. If you want to start shopping for a universal life insurance policy right away, use our free tool above.

Not yet ready to buy universal life insurance? Read on.

How Universal Life Insurance Works

What is universal life insurance and how does it work? Universal life insurance is a permanent life insurance policy, meaning it doesn’t expire after a set amount of time like term life insurance.

Universal life insurance is a cash value policy and works similar to a savings fund. The money you put into a universal life insurance policy gains interest over the course of your life, so your cash value can slowly increase to a significant amount.

So what are the disadvantages of universal life insurance? Unlike other life insurance policies, universal life insurance doesn’t have a fixed premium.

This means that as the value of your policy grows, you may have to pay slightly higher premiums. Universal life insurance policies also have different terms and conditions on death payouts than other life insurance policies.

Insurers keep part of the cash value upon death payout, so beneficiaries will only receive the pre-determined death payout amount. And if a policyholder borrows money (a loan) and doesn’t pay it back before death, the death payout amount will also decrease.

What are the benefits of a universal life insurance policy? Overall, a universal life insurance policy is a reliable policy, as there is little risk involved (unlike with variable life insurance).

As long as you keep up to date with payments and don’t borrow huge loans, your beneficiaries will be taken care of after your death.

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Types of Universal Life Insurance

Universal life insurance has three different subtypes that customers can purchase other than the basic universal life insurance policy. Take a look at them below.

  1. Guaranteed universal life insurance policy. This is one of the cheapest options, as it is just a bare-bones policy. With this coverage, your premiums are fixed. However, there is no cash value with this coverage (meaning there is no interest gained) and late payments usually result in immediate cancellation.
  2. Variable universal life insurance policy. This is the riskiest option of universal life insurance. The cash value of this policy consists of investment subaccounts. As with anything in the stock market, your variable universal life insurance policy’s value can rise and plummet. You will need to keep a close eye on your account if you chose this option.
  3. Indexed universal life insurance. With this coverage, you chose an index to invest your funds into. This option is more stable than the variable, but it still has a little risk if an index doesn’t do great. There is also usually a cap on how much you can earn if an index does well.

Make sure to talk to your insurer about what type is best for you before you commit to one of these universal life insurance policies.

Canceling a Universal Life Insurance Policy

Does universal life insurance expire? No. Universal life insurance is a permanent life policy, so if you decide you no longer want your universal life insurance policy, you will need to cancel it the right way.

If you simply stop paying premiums, you could be held liable for unpaid months. And even if you do officially cancel, you need to make sure you get the right policy payout so you don’t lose money.

When you cancel, there are a few ways to do it. You can sell your policy for a life insurance settlement, in which someone else takes over paying for your policy. When you die, the third party will get your payout. However, you should get a hefty sum of money from your life insurance payout.

In 2018, the Insurance Information Institute (III) found that insurers paid $784 billion in life insurance benefits and claims and that $350 billion of this consisted of payments for surrended life insurance policies or cash withdrawals from life insurance policies.

You may also surrender your policy to your insurer. However, you need to be careful you aren’t forfeiting your settlement with a surrender, as some insurers will just end the policy and won’t pay anything.

Should I get a different type of life insurance policy?

If you are canceling your universal life insurance, you should consider other types of coverages if you still have beneficiaries you want to take care of.

  • Whole life insurance. What is the difference between universal life insurance vs whole life insurance? Whole life insurance has fixed premiums and allows you to take out loans, whereas universal life insurance has changing premiums and taking out loans will decrease your death benefit payout.
  • Term life insurance. When it comes to universal life insurance vs term, universal term life insurance is less risky. Term life insurance’s cash value is tied up in investment subaccounts, which means the value of a policy can drop or rise independent of the premiums you put into it. The different types of term life insurance are also not permanent life insurance policies.

Every insurance policy has its advantages and disadvantages, so it’s up to you to decide what is best for you before you start shopping. Make sure to read whole, term, and universal life insurance reviews to learn more about their unique features.

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Frequently Asked Questions: Universal Life Insurance

Read on to see what other people are asking about universal life insurance policies. Still unsure which universal life insurance company is for you? Read on for some common questions.

#1 – Is universal life insurance a good investment?

We can’t give you definite advice on whether universal life insurance is a good investment, as it really depends on a person’s individual finances and needs.

However, universal life insurance does have the potential for a better payout. If you need help deciding whether you should invest in a universal life insurance policy, consider talking to a finance manager.

#2 – Should I cash out my universal life insurance policy?

You should only cash out your universal life insurance policy if you no longer need it or can no longer pay the premiums. Keep in mind that sometimes the cash payout you receive will be less than you put into the policy.

#3 – What happens to the cash value if I don’t use it?

If you don’t use your cash value before you die, the life insurance company will usually take it. However, if you purchased additional coverage that gives your beneficiaries the guaranteed death payout and cash value, it will not go to the insurance company.

#4 – Do universal life insurance premiums increase with age?

Yes, universal life insurance premiums usually increase with age if your cash value is increasing. However, if you’ve purchased a flexible universal life insurance policy, you can decrease your coverage to lower premiums.

We hope our guide has answered all your questions. To get affordable universal life insurance quotes, use our free tool below. Which universal life insurance company is for you? Find out now.

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