How Much Does Life Insurance Cost?

How much is universal life insurance?

Universal life (UL) insurance is one of the most versatile types of permanent life insurance. It has a high degree of flexibility and separate expense, protection, and cash value elements.

Flexible features:

Premiums: Instead of being locked into a fixed premium schedule for life, you can potentially pay any amount between the required plan minimum to the IRS-imposed maximum, depending on your cash flow needs and accumulation goals. Premiums may be increased, decreased, or even skipped depending on policy conditions.
Death Benefit: You can adjust the amount your beneficiaries receive upon your death within plan limits without having to buy another policy. This can reduce your costs, if necessary.

With universal life insurance, the premiums you pay each month go into a metaphorical bucket. Each month the insurance carrier takes out the administrative fees and the cost of insurance. The funds that are left earn interest.

The amount of interest earned depends on the rate declared by the insurance carrier and how much money is currently in the bucket. The rate will never fall below a contractually-guaranteed minimum and the accumulated cash value can be accessed at any time through policy loans or surrenders.

Policy loan: This enables you to borrow money from your policy using the value as a form of collateral. These loans do accrue interest and, if not paid off while you’re alive, the unpaid amount is deducted from the death claim benefits.
Full surrender: If you decide to fully surrender your policy, you are terminating all coverage and typically you will receive the accumulated policy value, less a surrender charge and any accrued loan interest, if applicable.
Partial surrender: This occurs if you decide to permanently withdraw a portion of your policy’s cash value, but keep some or all coverage active. There is no interest charged for a partial surrender, but there is a flat fee.

With universal life policies, you typically have two coverage options.

Option A: Your amount of life insurance coverage (the death benefit your beneficiaries receive) stays level and, as the cash value accumulates, the amount of life insurance you pay for decreases.
Option B: The cash value is added to the initial amount of life insurance, extending your coverage as the cash balance grows.

You choose the amount of protection best for your situation.

As a policyowner, you have more flexibility with a UL permanent product than a whole life insurance policy, but you also assume some additional risk. UL policies typically have fewer guarantees than whole life coverage, so you must be careful to manage your premium payments and any distributions taken to ensure that your policy remains active.

» Learn more: Whole Life vs Universal Life guide