Universal Life is a type of permanent life insurance based on a cash value. That is, the policy is established with the insurer where premium payments above the cost of insurance are credited to the cash value. The cash value is credited each month with interest, and the policy is debited each month by a cost of insurance (COI) charge, and any other policy charges and fees which are drawn from the cash value if no premium payment is made that month. The interest credited to the account is determined by the insurer; sometimes it is pegged to a financial index such as a bond or other interest rate index.

Universal Life can also be designed as Secondary Guarantee Universal Life.  Insurance companies have come up with a solution - to guarantee the insurance benefit on a universal life insurance policy even if the cash value in the policy goes to zero. This is known as a “secondary guarantee.” You agree to pay a premium which is often less than a whole life insurance premium and if you keep your payments up the policy’s death benefit is now guaranteed.

There are also new provisions where you can even pay a lower premium than the one that guarantees a policy, watch how it performs and thus possibly pay even a lower premium over time. If the policy doesn’t perform then you can make up the premium with what is called the “catch up provision.” You then deposit the back amounts that you would have had to deposit anyway.

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