How Does Universal Life Insurance Work?


Disclaimer: This article is intended for information purposes, with the sole objective of providing food for thought. Under no circumstances should it be construed as advice regarding insurance solutions. Only a duly certified insurance professional is qualified to analyze your personal situation, discuss your needs with you and advise you on insurance solutions.

Who should get universal life insurance?

Universal life is the most complex of all the life insurance products out there – term life, permanent life and group insurance – because it adds an investment component to the standard insurance coverage. This product is designed for people that have a permanent need for life insurance and that want to leave their descendants a healthy sum. If you are looking for just an investment tool, this product is probably not appropriate because you’ll be taxed on any amount you withdraw as long as you’re living.

If you still don’t know what product is best for you, check out our primer on life insurance ( and talk to an insurance professional.

How does universal life insurance work exactly?

Universal life is just like permanent life insurance with a tax-advantaged investment component. The premiums can be fixed or increase over time (increasing at stated periods). The amount paid out is guaranteed and tax free. The contract has a cash surrender value, the amount of cash you can get when you cancel the contract. Any amount that exceeds your monthly premium can be used to invest in one of the insurer’s funds. Your profits are not taxable as long as you do not attempt to use these funds yourself. 

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