How Does Universal Life Insurance Work?

Written by Marty Agather
Written by Marty Agather

Marty Agather is the Vice President of Client Experience for He started his insurance career by filling multiple roles over a 10-year span in a mid-sized independent agency in Chicago, Illinois. Marty also writes for various insurance magazines and blogs and co-hosts a weekly podcast at

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How does universal life insurance work?

Can you explain what universal life insurance is? How is it different than the other types of life insurance. This is so confusing!


Answered on 1/30/15 by Marty Agather

Universal life insurance is insurance that is designed to cover you until death, and thus is one of a number of policies known as a ‘whole life’ policy. Typically, monthly premiums for a universal life policy are higher during the early years of the policy than a similar ‘term’ life policy.

The difference between the lower term life premium and the universal life premium is invested in an account in the name of the policy holder. Interest on the balance of this ‘cash value’ accrues along with the overpayments. If the policy holder were to cancel the policy, they would receive any cash value in the policy.

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