Pay what you want, when you want

When you buy UL, the policy provides for planned level premium payments. But you don't have to make regular or level payments each payment period (e.g., monthly, yearly). You can make larger or smaller payments, more or less frequently than planned. With each payment you make, the insurance company deducts a portion for administrative expenses related to your policy. The remainder is credited to a cash value account, from which the cost of insurance coverage (the death benefit) is deducted, with the balance earning interest.

Your policy will remain in force as long as your cash value is sufficient to cover current expense and mortality charges, even if you don't make all the planned premium payments. Your cash value accumulates tax-deferred interest at rates determined by the company (including a guaranteed* minimum rate of interest).

Choose (and change) your death benefit

With UL, you can also increase or decrease your policy's death benefit as your insurance needs change. You can usually lower the death benefit at any time, but if you want to increase the amount of coverage, you'll need to go through the company's underwriting process again, which may include a new medical exam. Adding to UL's flexibility is the option to choose a level or enhanced death benefit.

Option 1 or option A pays a level death benefit that remains the same as long as you don't ask to change it. As the policy's cash value grows, the net amount at risk (the amount the insurance company has to pay out of its own pocket at your death) decreases. As the net amount at risk becomes lower, so too does your premium cost.

For example, if you own a $200,000 policy with $50,000 of current cash value, your premium is based on $150,000 of insurance coverage, even though the total death benefit is $200,000.

Option 2 or option B, the enhanced benefit, allows you to add the cash value to the face amount of the death benefit. For example, if your $200,000 policy has $50,000 of cash value when you die, your beneficiary receives $250,000. With this option, your premium cost is based on $200,000 of insurance, but you get more death benefit ($250,000) for your money.

Getting to the policy's cash value

As with most types of permanent life insurance, you can generally obtain loans from your insurance company by using the cash value of your universal life policy as collateral. Loans are charged interest at current or fixed rates. Be aware that if you don't pay back a loan, the death benefit payable to your beneficiary will be reduced by the amount of any outstanding loans plus accumulated interest at your death.

A unique feature of universal life insurance is that it allows you to take partial withdrawals from your policy's cash value. Depending on the policy, you may be able to withdraw up to 90% of the cash value. However, such withdrawals are regarded as permanent withdrawals and will reduce your policy's death benefit. Partial withdrawals are taken from principal first and are not subject to income tax. Withdrawals are usually not allowed in the first few years of the policy. Withdrawals of amounts exceeding your policy's principal may be subject to tax. There may be a surrender fee charged for full or partial surrenders. Talk to your insurance company, agent, broker, or tax professional before making a withdrawal.

*Any guarantees associated with payment of death benefits, income options, or rates of return are subject to the claims-paying ability of the insurer.