Universal Life Insurance Complete Guide 2023

Universal Life Insurance - The Definitive Guide 2023
Universal Life Insurance
Life Insurance Policy

In this guide, we provide a complete overview of Universal Life Insurance in 2023.

If you want to understand:

  • How does universal life insurance work?
  • Find out what types of policies are available


  • How to pay for a universal life insurance in creative ways
  • Using advanced strategies such as taking retirement income or borrowing from your policy's cash value

You'll enjoy the practical tips and ideas in this new guide for high net worth clients and wealth managers.

Let's get started.

What Is Universal Life Insurance?

Universal life insurance (UL) is a type of permanent life insurance. It is a whole life insurance policy and is designed to pay out a cash lump sum upon death.

UL is also known as 'jumbo' life insurance because of its high coverage level. The death benefit of universal life insurance can range from $1m to $150m and beyond.

How does universal life insurance work?

In a universal life (UL) policy, the premium paid goes toward insurance costs and administrative fees, with the remainder going into investment returns to build up the cash value component. A key feature of UL insurance policies is the flexibility of premium payment.

Policy loans and withdrawals are allowed under UL insurance policies. Surrender charges often apply to withdrawals during the first few years of an insurance policy. But policy loans are available without penalty from the start of year two onwards. Some universal life policies have no lapse guarantees meaning they have guaranteed life cover, regardless of investment performance.

Types of universal life (UL) insurance

It is important to understand the different types of universal life policies. Your choice depends on the features you want your policy to include. The amount of investment risk that you are comfortable with is another consideration.

The three main types of universal life insurance policies are:

  1. Fixed universal life insurance policy
  2. Index universal life policy
  3. Variable universal life insurance policy

Fixed Universal Life Insurance

Fixed universal life insurance (FUL) is a type of permanent life insurance. The premiums are used to cover insurance and administrative costs. The rest of the premium is invested into a cash account. The value of this cash account increases based on the insurer's fixed interest rate.

How does Fixed Universal Life Insurance work?

A fixed universal life insurance policy's rate of return is fixed every year. The insurer declares an interest payment for the upcoming year at the beginning of the year. During the course of the year, the cash account of the policy will be credited with this payment. Investments that have a fixed return offer investors peace of mind.

Index universal life insurance (IUL)

An index universal life policy is a type of whole life insurance. Insurance premiums are flexible and cover both the cost of insurance and the insurer's fees. The remainder of the premium is invested in a cash account with the return linked to stock market returns. You can choose to link your policy returns to popular indexes such as the S&P 500, the Hang Seng and Eurostoxx, which are used by insurers for benchmarking returns.

Reasons why investors choose index universal life insurance:

1. Premiums are lower than traditional or fixed universal life insurance policies.

2. Stock market-linked returns offer attractive investment growth potential

3. No stock market losses

4. Minimum guaranteed crediting rates

5. Low-interest rates mean lower returns from other types of universal life policies.

IUL or equity index-linked universal life insurance policies are the most popular type of universal life insurance policy.

How does Index Universal Life (IUL) work?

Index universal life policy returns track the growth of the stock market. But, you won't lose money when the market you are tracking drops in value, unlike investing in an equity index fund. There is a lifetime guarantee against stock market losses from the insurance company.

As a result of this guarantee against losses, the maximum return you can earn is capped. The annual stock market return cap for international life insurance policies is typically between 9% and 11%.

Most insurers offer a guaranteed crediting rate of 1-2% annually as well. This applies to policyholders who cash in their policy when the growth rate has not exceeded 1-2% per year.

In addition, the policyholder may switch out of an index return account. A fixed-rate account is typically offered as an alternative. Alternatively, the policyholder can have some exposure to stock market returns and some to a fixed-return account.

Variable Universal Life Insurance

Variable universal life insurance (VUL) is a type of permanent life insurance that offers a cash value component that is invested in a variety of investment options, such as stocks, bonds, and mutual funds. The performance of the cash value is dependent on the performance of the underlying investments.

How does Variable Universal Life Insurance work?

VUL policies allow policyholders to choose how their premiums are invested and offer the potential for higher returns than other types of permanent life insurance. However, they also carry more risk, as the cash value is subject to the fluctuations of the financial markets.

VUL policies generally have flexible premiums, meaning policyholders can choose how much they want to pay and can adjust their premiums as needed. They also allow policyholders to make changes to their policy, such as altering the death benefit or changing the investment options.

Like other types of permanent life insurance, VUL policies have a cash value component that accumulates over time and can be accessed through policy loans or withdrawals. However, these withdrawals or loans may reduce the death benefit or cash value of the policy.

VUL policies may be suitable for policyholders who are comfortable with market risk and have a long-term investment horizon. It is important to carefully review the investment options and fees associated with a VUL policy before purchasing one.

Group Universal Life Insurance

Group universal life insurance (GUL) is a type of permanent life insurance policy that covers a group of people. Many companies provide life insurance coverage to employees by buying GUL policies. The death benefit for the policy is paid to the beneficiary of an employee who dies while he or she is employed.

As an additional benefit, spouses can be included in a group universal life policy. Most group policies also cover accidental death.

The policy of each group member has a cash value that can either grow in value or be accessed for personal use. In some cases, employees may be able to take their group insurance policy with them if they leave the company.

GUL policies can be part of an employee benefits package and can be used to attract, hire and retain key personnel in an organisation.

Universal Life Insurance Companies

The world's largest life insurance companies offer universal life insurance to high-net-worth clients.

Here is a list of companies that provide universal life insurance in different forms.

  • AIA
  • Prudential
  • Manulife
  • Sun Life
  • Transamerica

When purchasing a policy, you should consider the insurer's financial strength.

Financial strength is a measure of the insurer's claims paying ability.

Read more about why financial strength of a life insurance company matters to policy owners.

Buying a Universal Life Insurance Policy

Paying for a universal life insurance policy can be done in 5 different ways and each has its pros and cons.

Premium financing life insurance is such a popular strategy that Capital for Life has dedicated a complete guide to the topic which can be found here - Universal Life Insurance Premium Financing - The Definitive Guide

Here is a quick overview of the 5 ways a universal life policy can be financed.

  1. Single pay
  2. Single pay with premium finance
  3. Multi-pay
  4. Life pay
  5. Lombard loans

Single Pay Universal Life Insurance

Single premium life insurance (SPL) is when a policy is fully funded in a single upfront payment. It is the cheapest and quickest way to buy a life insurance policy.

Premium Financing Single Pay

Premium financing life insurance is where a high net worth client borrows the majority of the single premium, typically 90% from a bank or premium financing company to pay for a life policy. Only the remaining 10% of the premium must be paid by the policy owner.

Multi Pay

Multi-pay for universal life insurance allows the cost of the insurance premiums to be spread over a period of time, typically 5 to 15 years, but in some cases as long as 30 years.

Life Pay

Life pay allows the cost of a life insurance policy to be spread over an insured individual's lifetime. The premium is paid annually and only ceases upon the death of the life insured.

Lombard Loans

A Lombard loan is a bank loan backed by assets such as stocks, bonds, and mutual funds that are pledged to the bank. The Lombard loan can be used to pay the premium on a life insurance policy. The assets pledged to the private bank serve as collateral and protect the creditor from default risk. If you do not repay the interest on your Lombard loan, the bank can sell your assets to recover the money it lent to buy the life insurance policy.

Discover why high net worth individuals choose premium finance lending in our definitive guide Premium Financing Universal Life Insurance.

Cost of Universal Life Insurance

The cost of buying universal life insurance depends upon the following factors:

  1. Age
  2. Gender
  3. Are you a smoker?
  4. Amount of life cover you want (US$)
  5. Where you live (country and city)
  6. Type of life insurance product you want
  7. Any special features (riders) you want to be added to your policy

Get an easy online quote for universal life insurance by visiting our quotes page.

Personalise a Universal Life Insurance Quote

With a universal life insurance quote, you will get a standard premium cost. From there, you can customise your quote.

The insurer will need to know more about you in order to provide you with a customised quote. It will want to know about your health, your lifestyle and your finances in detail.

If you decide to proceed with an application, life insurance underwriters will use these details to evaluate your application.

Assuming all goes well, the insurer will make you an offer of life insurance. It will tell you which risk class you fall into.

If you qualify for the best life insurance rates, you will fall into one of the following risk categories:

  • Standard plus
  • Preferred
  • Super preferred

If you fall into any of these risk classes, you will pay a lower premium for your life insurance cover.

Most people will fall into the standard risk class for insurance cover.

Smokers pay a higher premium for life insurance than non-smokers. However, insurers still award different risk classifications for smokers based on health factors. The most common risk classifications for smokers are:

  • Standard smoker
  • Preferred smoker

Finally, if you have added a rider benefit to your universal life quote, you will incur an additional charge. A premium rider is an additional benefit to an insurance plan. Some examples of life policy riders include:

  • Waiver of premium
  • Return of premium
  • Accidental death
  • Long term care insurance

Once you've received your personalised life insurance quote and you are happy with the cost and features, you'll need to accept the terms. This is done by paying the first premium and, once it is accepted by the insurer, your policy will be considered on-risk. Your policy is live and your coverage has begun.

  • Get a Universal Life Insurance Quote

    A universal life insurance online quote is the first step towards determining if this type of cover is the right choice for you and your family, or business. Here are the steps you'll need to follow to get a quote on a universal life policy.

  • Your Age

    Your age plays a key role in determining the cost of your universal life insurance policy. Please provide your date of birth in the format day/month/year.

  • Your Gender

    Quotes for life cover are usually provided by the insurance company based on your gender, either male or female. You will need to contact us directly if you wish not to state your gender, or if you have a different preference.

  • Smoker Status

    The cost of life insurance increases significantly when you smoke. As a smoker, you can expect to pay more for life insurance because of the long-term health dangers and shorter life expectancy. Your insurance quote will reflect this.

  • Amount of Life Cover

    Insurers will need to know how much universal life cover you want so they can offer you a price. Your quote will include the amount of cover you are applying for.

  • Country of Residence

    The insurers also take into account where you live. Insurers will need to know your country of residence before they can provide you with a quote since different countries and regions have different risks.

  • Purpose of Life Cover

    What is the need for life insurance? Is life insurance to cover debts such as a mortgage or future wealth taxes? Do you have a young family that you would like to provide financial security for? Would you like to use life insurance as key man insurance for your business? Maybe you want to incorporate life insurance into your retirement plan. Insurers want to know how you plan to use the life insurance policy.

  • Added Personalised Features

    As a final step, consider adding any special features, or riders, such as a return of premium, to your universal life insurance quote. Riders, or additional benefits, will increase your insurance cost, but they can offer you peace of mind that is worth the cost.

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  • Need Help?

    Life Insurance Advice from Experts

    Would you like help getting a quote or selecting a universal life insurance policy that's right for you?

    Perhaps you are interested in premium financing a universal life policy?

    Contact us, and we will match you with a financial adviser who can assist you.

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(FAQ) Frequently Asked Questions | Universal Life Insurance

Our answers to the most frequently asked questions about universal life insurance.

  • What is universal life insurance?

    Universal life insurance, also known as jumbo life insurance, is a type of permanent life insurance that provides large amounts of life insurance coverage. The premiums for universal life insurance are used to cover the life cover, with the remainder going to the savings portion of the policy with its cash value.

    Universal life policy premiums are typically paid in one lump sum upfront, but most insurers offer a multi-pay option which allows the cost of the insurance premium to be spread over several years. Insurance companies will often allow multi pay premiums to be paid over 2 to 30 years. The life insurance company will charge a higher overall premium if the multi-pay option is chosen to compensate for not receiving all of the premium upfront.

    Premium financing for universal life insurance allows the policy owner to finance up to 100% of the policy value. Universal life insurance policies are usually bought by high net worth individuals who want greater choice and flexibility in the investment part of their permanent life insurance policy.

  • When did universal life insurance start?

    The first universal life insurance policy was issued in the U.S. in 1979. Life Insurance Company of California issued the very first universal life contract. Most major life insurance companies in the United States began offering universal life insurance by 1983. Today, universal life, or UL as it is also known, comes in many different forms and is a major part of the insurance market.

  • What is indexed universal life insurance?

    Indexed universal life insurance incorporates both life insurance coverage and a cash account linked to stock market performance. A portion of the premium is invested in a strategy designed by an insurance company so as to capture the potential upside of stock market investing.

    When this option is chosen, the insurance company credits the policy with the growth of a variety of indices chosen by the policyholder. Insurance companies often offer policyholders the option to track the performance of the S&P 500, Hang Seng and Eurostoxx indices, for example.

    A number of insurers also offer indexed universal life insurance policies that guarantee that policyholders will not suffer stock market losses. Because of its no-loss guarantee and stock market growth, indexed universal life insurance is a popular retirement planning option.

    Unlike variable universal life insurance policies, indexed universal life insurance policies are guaranteed never to lose value simply due to market fluctuations.

    In addition, guaranteed minimum interest rates are also applied, adding an extra level of certainty to indexed universal life insurance.

  • What are indexed universal life insurance pros and cons?

    Like any other permanent life insurance, indexed universal life insurance has pros and cons. Here are some of the key benefits and disadvantages of indexed UL as it's often known.


    1. Indexed universal life insurance is typically cheaper than standard universal life insurance or traditional whole of life insurance.
    2. Exposure to stock market index returns like the S&P 500, Hang Seng and Eurostoxx 50 typically give higher returns than conventional universal life insurance policies.
    3. 100% expsoure to market returns gives transpareny on investment returns. Also known as the participation rate.
    4. No stock market losses with life insurers providing policyholder with a 0% floor to protect their policy cash value.
    5. Minimum guaranteed returns, typically 1% to 2% a year, for the life of the policy offered by the insurer protects policyholders.
    6. Annual reset means your policy starting value begins at zero each year. You do not have to make up for stock market losses before benefiting from index gains.
    7. Premum payments are flexible meaning policyholders can delay payment of premiums without their policy stopping and leaving them without cover.


    1. Indexed universal life does not offer the same guarantees as some types of whole of life insurance policies. Performance is linked to the indicies the policy tracks which is not guaranteed.
    2. Stock market returns are capped by the insurer meaning policyholders don't get all of the index upside. The cap is typically between 7% to 9% per year which is the maximum amount of interest the insurer will credit to your indexed policy.
    3. Cap rates can vary from year to year meaning the life insurance company can lower the amount it credits to your policy from the stock market returns it receives.
  • What is guaranteed universal life insurance?

    A guaranteed universal life policy (GUL) is guaranteed to last for the whole of your life. The policy has a cash value that can rise and fall, but a no-lapse guarantee is offered by the insurance company. This means that if the investment performance of the policy reduces the cash value to zero, the policy will continue to provide the death benefit.

  • What is variable universal life insurance?

    Variable universal life insurance is a type of permanent life insurance policy that offers life insurance coupled with an investment account that allows the policyholder to invest in a wide variety of funds and securities. Part of the policy premium is invested into an investment portfolio belonging to the policy with the remaining premium being used to pay for the life cover.

  • Is variable universal life insurance a good investment?

    Variable Universal Life (VUL) is a permanent type of life insurance policy, in which the cash value can be invested into shares, bonds and funds. The performance of these underlying investments will determine how good the investment into a variable universal life policy is viewed.

    9 factors that decide the performance of a variable univsersal life policy:

    1. Investment portfolio risk
    2. Higher portfolio running costs
    3. Active management of portfolio required
    4. More exposure to portfolio volatility
    5. No policy cash value guarantees
    6. Lower loan to value (LTV) for premium financing the policy
    7. Withdrawals and policy loans need more careful management
    8. Cost of insurance charged by the insurer
    9. Charges by the insurer to run the VUL policy
  • Can universal life insurance be cashed In?

    Money can be taken from the cash value of a universal life insurance policy by way of a withdrawal or a loan.

    Withdrawals from the cash value of the policy can help provide income in retirement or support other needs of the policy owner. Withdrawals are usually allowed within limits set by the insurer and do not always reduce the life cover.

    Policy loans can also be taken in order to access the cash value of a life policy. Any loan amount will reduce the death benefit of the universal life policy payout, if it's still in place at the death of the life insured. However, unlike withdrawals, policy loans can be repaid and the full death benefit restored to the policy.

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