Universal life insurance is a type of insurance that combines a more traditional policy with an investment/savings feature. You pay your premium, which then gets divided between the two (based on the terms established at the outset of the policy) aspects of the insurance. So, part of your premium will cover the insurance payment and the other part will go into the savings account feature – also referred to as the cash value or the investment portion. Because the cash value portion of the policy is typically used to make investments, and therefore provide dividends and grow the cash value itself, these types of policies can be very lucrative to the right buyer.

As with all types of insurance, some are better suited for you than others, and universal life is no different. But you must admit, an insurance policy that doubles as a saving account is a pretty cool idea, and when your savings, or a portion of it, is out of sight and out of mind, it’s easy to just let it build up.

Universal life insurance is further broken down into additional categories, or types, that allow buyers to access the best type of universal coverage for their particular situation, financial goals and risk-averseness.

Type of Universal Life Insurance:

Indexed

A stock market index is used to measure how the market is fairing. You have probably heard of the NASDAQ and the DOW JONES. These are indexes. When you purchase an indexed universal life insurance policy, the investment portion of your policy is linked to an index, such as these, but not necessarily these exact ones – there are others! This version of the policy is great for people who are comfortable with the inherent risk that comes with the stock market, so if you are risk-averse then this isn’t the type of policy for you. But, with greater risk comes greater rewards, so that is something to think about.

Variable

Variable universal life insurance is similar to indexed because its stock related, but you aren’t riding an index here. Variable types invest your cash value in mutual funds. Mutual funds are considered safer investments because it spreads your cash value around, allowing you to invest in multiple companies. This is less risky because you aren’t putting all of your eggs in one basket. If one of the companies you’re invested in does poorly and you lose money, you still have value invested in other companies who might be faring better and therefore, make up the difference.

Traditional or Guaranteed

This policy option is not tied to the stock market at all and is therefore low-risk. Your premium gets split up, your insurance is paid and your cash value is your cash value. Although your cash value builds up much more slowly in this type of universal life policy, you are still building wealth and you don’t have to worry about the safety of your savings.

Learn More

If you are considering or interested in learning more about this type of insurance, you should speak to an insurance broker rather than directly with an insurance company. A direct agent can only sell the products of one brand. Brokers are independent and can compare various products from various providers to help find the policy you need. Universal life insurance quotes will be available to you through a broker, and because this type of insurance has scalable premiums (based on how much insurance you want and how much cash value you want to build) you can certainly find something within your budget.