Universal life insurance is a form of permanent life insurance with some flexibility. Typically it offers flexible amounts of coverage, flexible coverage periods and flexible premiums. With a universal life policy, the death benefit can be increased over time based on a certain set percentage. The indexed amount can be based on Consumer Price Index (CPI) or can be a set percentage chosen by the policy holder.
This policy contract offers a choice of yearly renewable term (YRT) costs or level cost of insurance (LCOI). The policy owner can choose a level amount equal to the face amount of the policy or the face amount plus the cash value that has accumulated under the policy.
The most flexible component of a universal life policy is the alternatives available for the investment of premium contributions beyond what is used to cover the cost of insurance. This amount forms the cash value of the policy.
Some universal life insurance contracts allow the owner to choose how the cash value component will be invested. The choices available can be a Guaranteed Investment Certificate (GIC), money market account, an index fund investment or a segregated fund investment.