Universal Life Insurance is permanent life insurance based on cash value. That is, the policy is established with the insurer where premium payments above the cost of insurance are credited to the cash value. The cash value is credited each month with interest, and the policy is debited each month by a cost of insurance (COI) charge, and any other policy charges and fees which are drawn from the cash value if no premium payment are made.

Universal life insurance is intended to provide insurance coverage with greater flexibility in premium payment and the potential for a higher internal rate of return. Universal life insurance addresses the perceived disadvantages of whole life.

Interest is credited to the policy on a guarateed basis.  Non-guaranteed rates of return are determined by the insurer; sometimes it is pegged to a financial index such as a bond or other interest rate index.

Many of the contracts that appear most attractive include a strong secondary rate guarantee.  This will make it possible for the death benefit to be maintained to Age 100 where if certain minimum premium payments are made for a given period, the policy will remain in force for the guarantee period even if the cash value drops to zero. These are commonly called "No Lapse Guarantee”.

Premiums are flexible ranging from a minimum amount specified in the policy, to the maximum amount allowed by the contract.   There are several different ways a premium can be defined with a universal life contact.

A Single Premium UL is paid for by a single, substantial, initial payment. The policy remains in force so long as the COI charges have not depleted the account.

Fixed Premium UL is paid for by minimum premium payments associated with a no lapse guarantee in the policy.  The policy remains in force so long as all scheduled premium payments are made. 

Flexible Premium UL allows for varied premiums payments (within certain limits). 

Cash value may be considered more easily attainable.  The owner can discontinue premiums if the cash value allows it.  Also, a Universal Life policy will have provisions which will allow the policy owner to either borrow against or withdraw a portion of the contract’s cash value

Death benefit options are also more flexible because the owner can select one of two death benefit options, Option A and Option B.

Option A or Level pays the face amount at death as it's designed to have the cash value equal the death benefit.