Universal Life Insurance: How Does it Work? Does It Build Cash Value?

Clock July 22, 2022


If you purchased a universal life insurance policy years ago, you may have some lingering questions about how the policy works and how it can benefit you now, especially if your health or financial needs have changed, or if you no longer need the policy. We’re here to cover the basics and give you a refresher on universal life insurance as well as explain some options for selling that policy for cash.

Universal life insurance is a popular type of “permanent” life insurance. These policies can remain in force for your entire life, accrue value over time, and provide your beneficiaries with a death benefit. In these ways, universal life insurance is similar to whole life insurance. However, there are also a few key differences.

What is the difference between universal life and whole life insurance?

The major difference between these two types is that universal life insurance offers more flexibility in terms of premiums as well as benefits. In many cases, the policyowner can use accumulated cash value to cover some or all of a premium payment, or even multiple payments. Policyowners can also, within certain limitations, determine the frequency and timing of their premium payments. In some circumstances, UL policyowners can even change their policy’s death benefit, although to increase it, additional medical underwriting will likely be required. This is in contrast to whole life insurance (WL), which has fixed premiums and death benefits. Universal life insurance generally has more affordable premiums than whole life insurance during the early years of a policy, although while whole life premiums remain fixed, universal life premiums usually sharply increase along with the insured’s age.

Does universal life insurance build cash value?

To answer briefly, yes. A universal life insurance policy builds cash value similar to the way a savings account would. If you pay higher than the premium minimum, that overage goes directly into your cash account, separate from the death benefit, and accumulates interest. Interest is earned on a tax-deferred basis. It may also grow at a faster rate depending on market conditions.

Policyholders can borrow against the cash value of a universal life policy or even access a portion of the cash value account. However, there may be taxes or interest associated with those transactions that you should consider. As always, be certain to speak with your financial advisor about any questions related to your specific circumstances.

Can I sell a universal life insurance policy?

Rather than borrowing against the policy or withdrawing from the cash value, a life settlement can potentially serve as a more lucrative option to generate funds. If you no longer need the benefits provided by the policy or simply wish not to keep up with the premium payments, you can sell your universal life insurance policy through a life settlement. On average, policyowners who qualify and choose to sell their life insurance policy through a life settlement receive a payout of between 5% and 25% of the policy’s face value, although in some cases, the payout can be as much as 50%. A life settlement always pays you more than allowing a policy to lapse, and on average pays up to 4 time more than a policy’s cash surrender value.

Working with experienced life settlement professionals like the team at Lighthouse Life is key to getting the best value for your sale. You can trust our team to exceed all standards and act as transparent, honest advocates for our clients. If you’re ready to explore selling your universal life insurance policy, generate a free, no commitment estimate as your first step.


Average rating 5 / 5. Vote count: 8

No votes so far! Be the first to rate this post.