Universal life insurance
Permanent coverage with more levers to pull — and more responsibility to manage them.
Permanent life insurance that separates the insurance cost from an investment account, giving you flexibility over premiums and how the cash value is invested.
How universal life is built
Universal life is permanent insurance, so it is designed to cover you for life. What sets it apart from whole life is transparency and flexibility: the contract explicitly separates the cost of insurance from a cash value account, and you can see and adjust both. You choose, within limits, how much to pay and how the cash value is invested.
Each payment first covers the current cost of insurance and policy charges; the remainder goes into the investment account. That account can be linked to interest-based options or to indexed accounts tied to the performance of market benchmarks, depending on the policy. The cash value grows on a tax-advantaged basis inside the policy, subject to the exempt-policy rules set out under the federal Income Tax Act.
Flexibility cuts both ways
The premium flexibility that makes universal life attractive is also its main risk. Because you can pay more or less within a range, an underfunded policy can run into trouble: if the cash value is not large enough to cover rising insurance costs as you age, the policy can lapse, potentially wiping out coverage you assumed was permanent.
You also generally carry the investment risk on the cash value, unlike a guaranteed whole life schedule. If the chosen investment options underperform, the cash value grows more slowly, which can require higher payments later to keep the policy in force. This is why universal life rewards people who will actually monitor and manage the policy over decades, and punishes those who set it and forget it.
Cost-of-insurance structures
Universal life policies typically offer a level cost of insurance, where the insurance charge is fixed for life, or a yearly renewable term (YRT) cost that starts low and rises with age. Level costs more early but is predictable; YRT is cheaper up front but climbs, which can strain an underfunded policy in later years.
The right choice depends on how long you expect to hold the policy and how much cash value you plan to build. A policy funded aggressively to accumulate tax-advantaged value behaves very differently from one funded at the minimum. A licensed advisor can model both so you understand what your payments need to look like to keep the coverage permanent.
Common questions
What's the difference between universal life and whole life?
Both are permanent, but whole life bundles the insurance and a guaranteed cash value together with less visibility, while universal life unbundles them and gives you flexibility over premiums and investment choices. Whole life offers more certainty and less work; universal life offers more control and more responsibility to keep it funded.
Can a universal life policy lapse even though it's 'permanent'?
Yes. Permanent means the coverage can last your whole life, but only if the policy stays adequately funded. If the cash value runs too low to cover rising insurance costs and you don't add premiums, the policy can lapse. Regular reviews help you catch this early.