How universal life works
Your premium goes into the policy's cash value. Each month the insurer deducts the cost of insurance and fees, and credits interest to what remains. If the cash value runs low because premiums were too small or credited interest was lower than projected, the policy can lapse unless you pay more.
Common versions
Insurers sell several designs under the universal life name.
- Guaranteed universal life: built mainly for a lifetime death benefit with little cash value, as long as premiums are paid on schedule
- Indexed universal life: interest is tied to a market index, with a cap on gains and a floor on losses
- Variable universal life: cash value is invested in subaccounts and can lose value
What to review carefully
Ask to see the guaranteed column of any illustration, not only the projected one. The guaranteed figures show how the policy performs if conditions are unfavorable, and that is the scenario you need the policy to survive.
Common questions
Can a universal life policy lapse?
Yes. If the cash value cannot cover the monthly charges and no additional premium is paid, coverage can end.
Is universal life cheaper than whole life?
It often has a lower starting premium for the same death benefit, but fewer guarantees. Compare the guaranteed terms of each.
This page is general information, not insurance, legal or tax advice. Policy terms, eligibility and pricing vary by insurer and state. A licensed insurance agent can explain the specific products they offer.