For those who are seeking a flexible way of protecting loved ones, while at the same time building up tax-deferred cash value, a universal life (UL) policy may be a viable solution. That is because these policies essentially combine the "low cost" death benefit coverage of term life insurance with cash value build-up like whole life.
A UL policy's cash value is considered to be "interest rate sensitive," meaning that the funds inside of the plan are used for purchasing short-term interest-bearing financial instruments. Typically, a universal life policy will offer a minimum interest rate on the cash value. However, if the current market interest rates are higher than the stated rate at a given time, the insurance carrier may pay a higher amount than the guarantee.
These policies can provide a great deal of flexibility, too, in that the policy holder may be able to change the timing and / or the amount of his or her premium in order to meet their changing needs. In some cases, the policy holder may even be able to stop making premium payments altogether, as long as there is enough money in the cash component to keep the policy in force.
A universal life insurance policy holder may also be able to decide - given certain guidelines - how much of their premium to put towards the policy's death benefit, and how much to put towards the cash value.
Just as with other forms of permanent life insurance, the money that is inside of the cash value component of a universal life policy may be withdrawn or borrowed for any reason that the policy holder chooses. This means that funds may be available for paying off debt and / or for making large purchases such as a vehicle or a home.
There are many different types of universal life insurance policies that are available in the market today. With that in mind, prior to making a purchase of this (or any) type of life insurance plan, it can be helpful to first discuss your specific needs with an independent life insurance agent.
That way, you will be able to compare from a number of different policy options, as well as premium rates, and from there you can determine which universal life insurance plan may be right for you.