By Marc Gilman
Questions?
Call (800) 927-9326 or email
Key Takeaways
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Universal life (UL) is permanent life insurance with flexibility. Within limits, you can adjust the premium and often the death benefit as your needs change. Whole life usually has a fixed premium and death benefit.
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There are four main types. Fixed, guaranteed, indexed and variable universal life differ in how much is guaranteed and how the cash value grows.
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A lower premium isn’t always a lower cost. It can mean less of your payment is going into cash value.
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Flexibility means you have to watch the policy. If it underperforms, you could face higher premiums, or the policy could lapse.
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Ask for an illustration, and ask for it again later. An in-force illustration every few years shows how the policy is doing under current charges and assumptions.
What Is Universal Life Insurance?
Universal life insurance is a type of permanent life insurance, meaning it is designed to last your whole life as long as it stays in force. What sets it apart is flexibility. You can often raise or lower your premiums and your death benefit, within limits, as your finances and family change.
Each premium you pay is divided three ways:
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Cost of insurance, which pays for the death benefit your beneficiaries can receive.
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Internal expenses, such as administrative and operating charges.
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Cash value, a savings component that grows in different ways depending on the type of policy. With most UL policies, you can borrow or withdraw from it while you are alive.
That is why a lower premium isn’t automatically cheaper. It may simply mean less money is going to the cash value. A policy illustration, which shows how a policy could perform under various assumptions, helps show what you are paying for.
What Are the Four Types of Universal Life?
The types differ mainly in their guarantees and in how the cash value is invested.
Fixed Universal Life
The cash value grows at a rate the insurer sets, with a guaranteed minimum. Depending on the insurer’s investment results, growth may exceed the guaranteed rate. It tends to suit someone who wants lifelong coverage and flexibility, and prefers lower risk to higher cash-value growth.
Guaranteed Universal Life
Guaranteed universal life (GUL) focuses on a guaranteed death benefit, with little or no cash value. You generally need to keep paying premiums at a required level and avoid withdrawing cash value, or you could lose the guarantees. In exchange for the lost flexibility, premiums are usually lower than on other permanent policies with the same face amount. It tends to suit people who care most about the death benefit.
Indexed Universal Life
Indexed universal life (IUL) links cash-value growth indirectly to a market index, such as the S&P 500. The insurer doesn’t invest your money directly in the index. Instead, your policy sets how your cash value is credited, usually using one or more of these tools:
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Cap: the most you can be credited in a period. With an 8% cap, a 15% index gain credits 8%.
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Participation rate: the share of the index gain that counts. With an 80% rate, a 10% index gain credits 8%.
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Spread: a percentage subtracted from the gain before crediting.
Many IULs also have a floor, often 0%, so a down year in the index doesn’t reduce your credited interest, although policy charges still apply. As Steve Parrish of the American College of Financial Services put it, “You’re covered on the bottom, but you have to give something up on top.” Many IULs also offer a fixed account for part of the cash value, and some let you choose among several indexes.
Variable Universal Life
Variable universal life (VUL) lets you invest the cash value in market-based subaccounts, similar to mutual funds. That brings the potential for higher growth, but there is no minimum floor. Losses can reduce your cash value, and the policy can lapse if there isn’t enough to cover monthly charges. It is generally best for people who are comfortable with market risk and willing to monitor and adjust their investments.
How Do the Types Compare?
According to LIMRA data cited by Buy Side, IUL was the most popular form of UL based on 2025 premiums. Popularity isn’t a reason to choose a policy. The details of the contract and how it matches your goals are.
How Can I Use the Cash Value, and What Does It Cost?
Cash value grows tax-deferred, and there are three common ways to use it while you are alive:
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Withdrawals: Generally tax-free up to the amount of premiums you have paid, and taxed as ordinary income above that. Withdrawals reduce the death benefit.
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Policy loans: You can borrow against the cash value, often at a lower rate than other loans. Any unpaid balance at your death reduces the death benefit.
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Surrender: If you no longer want the coverage, you can surrender the policy and receive the cash value minus surrender charges.
Tax treatment depends on how a policy is set up and used, so talk to a tax professional before you take money out.
Some policies also offer a choice of death benefit. Option 1 pays the face amount. Option 2 pays the face amount plus the cash value, which can help with estate planning because the benefit can grow. A less common option adds a return of premiums to the face amount.
What Are the Benefits and Drawbacks of Flexibility?
The same flexibility that lets you adjust premiums and coverage also means the policy needs attention. If the cash value falls short of what is needed to cover charges, you could have to pay more or risk a lapse. Parrish recommends requesting an in-force illustration every few years to see how your policy is performing under current charges and assumptions, which may differ from the original illustration.
What Should I Ask Before Buying?
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What type is this, and what is guaranteed? Ask what is guaranteed in the contract, and for how long.
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What are the premium and the cost of insurance now, and how could they change?
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For an IUL, what are the cap, participation rate, spread and floor, and what are the minimums the insurer can’t go below? If you read our recent post on what can change after you buy an indexed annuity, the same questions apply here.
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What does the illustration assume? Ask to see it at lower crediting rates, not only at the most favorable one.
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What is the surrender charge schedule?
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What happens if I stop paying or pay less? Find out how the policy could lapse.
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How will withdrawals and loans affect the death benefit?
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How are you, the agent, paid? A good agent should answer plainly.
Where Does Insurance Planning Fit In?
Life insurance can serve several jobs: income replacement, leaving something to family, covering final expenses, estate planning or supplementing retirement income. The right type depends on which of those jobs matters most to you, how much you can pay, and how much risk and attention you want to take on. We start there, show you how the options we offer compare, and review the guarantees, charges and illustrations with you. We can also work alongside your financial advisor and tax professional.
What To Do Next
If you already own a universal life policy and haven’t looked at it in years, or you’re comparing types, we’re happy to walk through it with you.
Questions? Call (800) 927-9326 or email
Prefer we reach out to you instead? Complete our Permission to Contact form and a licensed Gilman Agency agent will follow up.
Source: Kimberly Lankford, “Universal Life Insurance: Flexible Coverage for Long-Term Planning,” Buy Side (updated Sept. 17, 2026), including a LIMRA data point on 2025 life insurance premiums. Examples of caps, participation rates and spreads are illustrations only.
Gilman Agency is not affiliated with or endorsed by Buy Side, LIMRA or the American College of Financial Services. This article is for general educational purposes and is not investment, tax or legal advice, a recommendation to buy any policy, or an offer of coverage. Life insurance guarantees depend on the claims-paying ability of the issuing insurance company and are subject to costs, charges and limitations. Policy loans and withdrawals reduce the death benefit and cash value and may have tax consequences. Indexed universal life is not a direct investment in an index. Variable universal life is subject to market risk, including loss of principal, and is sold by prospectus; consider the objectives, risks, charges and expenses carefully. Rates, caps and charges can change as the contract allows and vary by company and product. Tax rules change. We do not offer every plan or product available in your area. Consult a licensed insurance professional, financial advisor and tax advisor regarding your specific situation.
