Universal life insurance (UL) is a relatively new insurance product, designed to combine permanent insurance coverage with greater flexibility in premium payment, along with the potential for greater growth of cash values. There are several types of life insurance universal, which include interest sensitive (also known as "safe traditional fixed universal life"), variable universal life (VUL), guaranteed death benefit, and equity indexed universal life insurance.
A policy of universal life insurance includes a cash value. Premiums increase the cash values, but the cost of insurance (along with any other charges assessed by the insurance company) reduces cash values.
Universal life insurance addresses the perceived disadvantages of whole life - namely that premiums and death benefits are fixed. With universal life, both the premiums and death benefit are flexible. Except with respect to the death benefit guarantee universal life, this flexibility comes with the disadvantage of reduced guarantees.
Flexible death benefit means the policy owner can choose to decrease the death benefit. The death benefit could also be increased by the policy owner, but usually requires the insured to go through a new subscription. Another feature of the Flexible death benefit is the ability to choose between option A or option B death benefits, and to change those options during the life of the insured. Option A is known as a level death benefit often. Overall, the death benefit will remain level for the life of the insured and premiums are expected to be lower than policies with a death benefit Option B. Option B pays the face value plus the cash value. If cash values grow over time, so the death benefit, which is paid to the beneficiaries of the insured. If cash values decline, the death benefit would also decline. Presumably, the death benefit policies require B option premium than option A policies.
Another type of permanent insurance is a limited life insurance payment, in which all the premiums are paid over a specified period after which no additional premiums are due to the current policy. Common payment periods are limited to 10 years, 20 years, and are paid at the age of 65.