What is universal life insurance and how does it differ from whole life?

UNIVERSAL LIFE (UL) INSURANCE is a permanent life insurance product developed to offer more flexibility than the rigid whole life structure. STRUCTURE: A UL policy separates the death benefit and savings components, allowing the policyowner to see how charges are applied and how cash value grows. PREMIUM FLEXIBILITY: Unlike whole life, which requires a fixed premium to keep the policy in force, UL allows the owner to: pay more than the scheduled premium (builds cash value faster); pay less than the scheduled premium (the difference is covered by the cash value); pay nothing if the cash value is sufficient to cover the monthly deduction (mortality charge and expense charges). DEATH BENEFIT OPTIONS: Option A (Level) — death benefit remains level; as cash value grows, the net amount at risk (the pure insurance portion) decreases; Option B (Increasing) — death benefit equals the face amount PLUS the cash value; net amount at risk remains more constant; higher premiums. CASH VALUE: Earns interest based on current market rates (not a fixed rate like whole life); typically has a minimum guaranteed rate (commonly 2-3%); credited monthly; POLICY CHARGES: Monthly charges deducted from cash value include: cost of insurance (COI — the mortality charge for pure insurance); expense charges; these increase as the insured ages; RISK: If premiums are kept too low for too long and the cash value depletes, the policy lapses without value — UL policies can lapse even after many years of premiums if underfunded. CONTRAST WITH WHOLE LIFE: Whole life has fixed premiums, guaranteed cash value growth, and cannot lapse as long as premiums are paid on schedule.