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Universal Life Insurance is a permanent cash value insurance that has a term-insurance component and a savings component as well.

The savings component is invested in a tax-deferred account, designed to create a cash build-up that can increase the death benefit or to be used at the discretion of the policy-owner. The cash grows inside the policy tax-deferred, and if money is taken out as a loan, it avoids taxation as income.

This has appeal to those who are out of other places to put money in a tax-advantaged vehicle.

Universal life has also been evolved into variable universal life and indexed universal life, both of which seek higher returns than classic universal life, which also known as current assumption universal life, which performs as well as the general account of the insurance company will allow it to. The general account is where all of the fixed assets of the insurance company are held, and it is a conservative place to grow money.

Universal Life Insurance policies are incredibly flexible, which is why they spawned other variations on the theme: they allow money transfers between savings and insurance components; premiums, savings, and death benefits can be modified as the policy owner’s circumstances change; and you are allowed to use the interest accumulated in your cash build up in order to pay the premiums.

However, keep in mind that the insurance costs built into them make them relatively expensive as the insured gets older in some cases, but this depends on the net amount at risk (the amount of insurance over and above the cash value balance as the insured ages) and what company you’re dealing with.

In most cases you will be better of buying long-term and investing the difference (BTID).

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