Universal life insurance.

In plain English

Universal life insurance is a type of permanent life insurance, meaning it can last your whole life rather than a set term. It has a cash value account that grows at an interest rate the insurer credits, and it gives you some flexibility to raise, lower, or skip premium payments as long as the cash value can cover the policy's internal costs. That flexibility is double-edged: if you underpay for too long, the costs can eat the cash value and the policy can lapse. It differs from whole life, where premiums and growth are fixed and guaranteed.

01Why it matters

The flexible premiums sound convenient, but a policy can quietly run out of money and collapse if you pay too little, leaving you with no coverage after years of payments.

02The math, step by step

Imagine you fund a universal life policy and the insurer credits interest on your cash value while charging monthly costs for the insurance and fees. In good years the credited rate covers the costs and the cash value grows. If the insurer lowers the credited rate or your costs rise as you age, you may have to pay more to keep the policy alive. The credited rate and guaranteed minimum are set by your contract, so check the current credited rate and guaranteed minimum rate in your own policy documents.

03What this is NOT

04Receipts

Every figure on this page is sourced to a primary document. Tap to open the original.