Universal life insurance is one of the 5 main types of life insurance. The other 4 life insurance plans are term, whole life, variable life, and variable universal life plans. Before buying a universal life plan according to your friend’s or family’s recommendation, it will be a good idea to find out more about universal life plans.

Universal life policies offer flexible premium payment schemes. These are permanent life plans with premiums that fluctuate every year. You, the policy holder can request your own payment terms including how much premium to pay each year with the exception of the 1st few year of premium payments when the amount will be set by the insurance company.

Although you can set your premium payments for universal life policies, there is still a minimum amount payable each month. You can go over that minimum level or stick to it. Premiums are paid in cash and the policy remains effective as long as there is a cash value available on the policy. There are 3 main types of life insurance policies.

1. Fixed universal life plan: Fixed universal policies pays a fixed amount of interest to cash payments.

2. Indexed universal life plan: Indexed life policies pays interest based on the upward movement of the stock market index but ignores the downward movements or market losses.

3. Variable universal policy: This type of coverage pays interest based on mutual fund sub-accounts that fluctuate in value that also causes policy cash values to swing up and down.

Universal life policies are made to be more flexible. The cash values and premium payments are separately determined. Although the flexibility can be advantageous for most people, it can also be a liability for some.

For example, if you are not able to pay enough for the premium payments, the cost of your policy increases but the cash value and benefits decrease. In a worse case scenario, you could default on payments and lose the policy all together.

There are also some advantages to getting a universal life insurance policy. Skipping a payment will not get you in trouble or make your policy lapse. Depending on your present financial situation, you can increase or decrease your premium payments.