Universal Life Insurance, also referred to as Flexible Premium Universal Life, lets you vary your premium payments and when you will pay the premiums, with some limits on how flexible you can be. For example, you may be able to skip a premium payment; or, increase or decrease your premium payments as long as the total amount of premiums you are paying in over a period of time is enough to keep the policy in force. As you get older, however, the minimum premium payments may increase.

Cash surrender value for a Universal Life Insurance policy depends on the performance of the insurance company's investments. Make sure you understand whether any benefits or cash surrender values are guaranteed. Even if there is enough in your account to pay the premiums, continuing to pay premiums yourself means you build up more cash surrender value.

If you do not pay enough in premiums, you may reach the point where your insurance coverage will end. To prevent that, you may need to raise your premium payments or lower your death benefits. The insurance company must send you an annual report and will also notify you if you are in danger of losing your policy due to insufficient value.

When you buy Universal Life Insurance, you may be able to change the amount of the death benefit (also called the "face amount"), after you buy the insurance. But, to increase the death benefit, you may need to fill out another health history or have a new medical exam.  

Variable Life Insurance  

Variable Life Insurance benefits (both the death benefit and earnings) vary based on the investment performance of the assets in which your premium payments are invested. You will generally be offered a variety of investment options (equity, bond, and money market mutual funds). Death benefits and cash values are directly related to the performance of investment options you choose. There may be a guaranteed minimum death benefit; however, you may be required to pay extra for that feature.

There are two kinds of Variable Life Insurance policies. You can buy a policy which has premiums with set times and amounts, or you can buy a policy which allows changes in premium payment times and amounts. Unlike Universal Life Insurance, however, the death benefit will also change depending on how much you pay in and the performance of the investments you choose.

The insurance company will give you a "prospectus" which will explain the policy before you buy it. The company will probably describe the different investment options in the prospectus, but you may also ask for additional information about the investment options. Study the prospectus carefully and be sure to ask the company about anything you don't understand.Agents who sell Variable Life Insurance must have both a Massachusetts insurance agent license and be registered as representatives of a broker-dealer licensed by the National Association of Securities Dealers (NASD) and be registered with the Securities and Exchange Commission (SEC) as well. The SEC also reviews and approves the contents of the prospectus you will receive, and is currently involved in an effort to make these prospectuses much more understandable to consumers.

With a Variable Life Insurance policy, there are usually no guarantees. If the investments you choose lose money, you could find that the value of your account is far less than the amounts you have paid in.

Although some Variable Life policies may include a minimum guaranteed death benefit, others do not have this guarantee. It is possible that, if you were to die when the values were low, the death benefit your beneficiaries received would be reduced to little or nothing.  

Comparing Major Types of Life Insurance