Universal life insurance is a type of permanent life insurance, which means it offers lengthy coverage and builds cash value over time. Policies typically last until a certain age, such as 95 or 120.
This coverage offers flexibility that other permanent policies — like whole life insurance — don’t. For example, you can adjust the amount you pay in premiums, which may appeal to people like freelancers or business owners whose income can vary.
But this type of coverage isn’t right for everyone. Learn more about the pros and cons of universal life insurance before you start shopping.
Indexed universal life insurance is a type of universal life insurance that places the cash value in subaccounts that mirror the rise and fall of a stock index, such as the S&P 500. It’s complicated and requires a more hands-on approach, so we don’t recommend it as a way to meet life insurance needs.
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How does a universal life insurance policy work?
CostsCheaper than whole life insurance, but still pricier than term life.
BenefitsPermanent coverage with options to change your premiums and/or death benefit.
Who it's best forPeople who want permanent life insurance with flexibility.
Universal life policies work in a similar way to other permanent life insurance policies. In exchange for premiums, you typically get lifelong coverage and your beneficiaries receive a payout when you die. You also have the opportunity to build cash value and take out loans while you’re still alive.
However, universal life insurance has unique features that set it apart from other types of policies.
Universal life insurance builds cash value
When you make a premium payment, the insurance company takes out the cost of the insurance as well as any fees. The rest is added to your policy’s cash value, which can grow over time based on an interest rate set by the insurance company. Universal life policies come with a guaranteed minimum interest rate.
The main perk of universal life insurance is the ability to adjust your premiums. You can pay more than the minimum premium, up to a certain limit, and the additional funds — minus any fees — are funneled into your cash value.
Alternatively, you can pay less than the minimum premium. If you do this, make sure you have enough cash value to cover the cost of insurance and other charges or else your coverage could lapse.
Universal life insurance has an adjustable death benefit
You usually have the option to decrease your life insurance death benefit, which can be handy if you no longer need as much coverage. Some insurers may allow you to increase your coverage, though this option is not as common.
In general, there are two types of death benefits to choose from:
- Level death benefit. In most cases, the death benefit amount remains the same through the life of the policy. For example, if you buy $100,000 of coverage and build up $60,000 of cash value, your beneficiaries receive $100,000 when you die.
- Increasing death benefit. Your cash value balance is added to the death benefit. So, in the previous example, your beneficiaries would get $160,000: the death benefit plus the cash value. This option comes with higher premiums.
Other types of universal life insurance
There are three other types of universal life policies you may encounter when shopping for life insurance. In some situations, you might want to consider guaranteed universal life insurance as a lower-cost solution for lifelong coverage.
In general, we don’t recommend indexed universal and variable universal life insurance due to higher risk, fees and complicated policy terms.
- Guaranteed universal life insurance doesn’t require the same hands-on approach as standard universal life insurance and is often described as a compromise between term and whole life. It offers lower rates because the cash value growth is minimal.
- Indexed universal life insurance works similarly to a standard universal life policy, but the cash value is based on the performance of stock indexes like the S&P 500 and Nasdaq composite. In some cases, cash value will be placed in a fixed account unless you choose other investments.
- Variable universal life insurance has a cash value portion that’s invested in various subaccounts of your choice. It has higher potential returns and losses, so it comes with greater risk.
Universal life insurance: Pros and cons
If you’re in the market for a permanent life insurance policy and the premiums fit your budget, universal life insurance offers flexibility and potential returns. But it has downsides.
Weigh the pros and cons of a universal life policy to decide whether this type of insurance is right for you.
Advantages of universal life | ||
|---|---|---|
Flexible premiums | Universal policies allow you to change the size and frequency of your payments, which can be handy when times are lean. However, paying less can put you at risk of a policy lapse, so check with a fee-based life insurance advisor before making changes to your premium payments. | |
Flexible death benefit | Your policy may include the option to increase the death benefit if you need more, although you'll usually have to take a medical exam to qualify for extra coverage. If you want to decrease your death benefit, you can typically do so after the policy has been in force a few years. | |
Potential cash value growth | The money in your cash value account will earn interest at the rate set by your insurer, and that rate can change frequently. | |
Disadvantages of universal life | ||
|---|---|---|
Requires you to monitor your policy | If you don’t pay attention to the cash value, the policy may become underfunded. This could mean making large payments to maintain the coverage you signed up for. | |
More exposure to risk | When interest rates rise, your universal life insurance looks like a shrewd decision. But if rates drop, your cash value may not grow as you’d hoped. Fortunately, universal life insurance policies typically come with guaranteed minimum interest rates. | |
Universal life insurance vs. whole life insurance
Similar to universal life, whole life policies are a type of permanent coverage, which means they can last your entire life. But, unlike universal life, whole life policies have fixed premiums and death benefits and offer consistent cash value growth.
So, if you want a permanent policy that you don’t need to monitor as closely, whole life may be the simpler option. Consider universal life insurance only if you expect you'll need to adjust your coverage or premium payment over time.
And if you’re simply looking for affordable life insurance coverage, term life insurance is sufficient for most people. It can be used to cover the time period when your death and lost income would have the greatest financial impact on your family.
Types of life insurance | Coverage length | Builds cash value | Death benefit | Premiums |
|---|---|---|---|---|
Term | Temporary; typically 10, 20 or 30 years. | No. | Fixed. | Fixed. |
Whole | Lifetime. | Yes. | Fixed. | Fixed. |
Universal | Lifetime. | Yes. | Flexible. | Flexible. |
» MORE: Best term life insurance
Universal life policy riders
There are several riders your insurance company may offer for a universal life policy. Life insurance riders are add-ons you can use to personalize your policy. They might add coverage features or guarantees, but they’re typically optional or come with an additional cost.
No lapse guarantee.
As long as you pay the amount required to maintain the guarantee — which may be higher than the minimum premium — your death benefit will remain in place, even if your cash value drops.
Waiver of premium.
This pauses premiums if you become disabled. The rider keeps your policy in force, but no funds are added to the cash value.
Accelerated death benefit.
This allows you to access some or all of your death benefit while you’re still alive if you’re diagnosed with a terminal, critical or chronic illness. The terms of the rider vary by insurer, so check to see what’s covered by your insurer’s accelerated death benefit and how much it pays out.
Family riders.
Child term riders and spouse riders allow you to add coverage for other members of your family under your universal life policy.
Accidental death.
An accidental death benefit rider increases the payout from your policy if you die in, or as a result of, an accident.
Guaranteed insurability.
This allows you to increase your policy’s death benefit at specific life stages or policy anniversaries, without an exam or health questionnaire. For example, with a guaranteed insurability rider you could increase your death benefit when your child is born, even if you’ve developed a medical condition.
How to find the best universal life insurance company
Universal life policies are complex, so to find the right company, focus on these three things:
🏦 Financial strength. You'll want a life insurance provider that’s financially strong so you'll know your cash value is safe and your beneficiaries will receive a payout when you die. In most cases, you can find financial strength ratings for life insurance companies from AM Best or S&P Global Ratings, but you may need a free login to check. All of the insurers on NerdWallet’s list of the best life insurance companies have ratings of A+ or higher from AM Best.
📑 Policy types. You should find a company that offers the policy options and riders you’re looking for. Premiums and fees for universal life policies can vary between companies, too.
🤓 Expert advice. Finally, it’s a good idea to consult a fee-only life insurance consultant. You can usually find one through an online search. These experts can help you to better understand how insurance policies differ.
See NerdWallet's list of the best life insurance companies.
Best universal life insurance companies in 2026
Insurer | NerdWallet rating | Offers a no-lapse guarantee? |
|---|---|---|
Guardian Best for health conditions | Yes. | |
Northwestern Mutual Best for customer service | No. | |
MassMutual Best for policy features | Yes. | |
Pacific Life Best no-lapse guarantee | Yes. | |
NerdWallet rates insurers at the company level, not the policy level. This means our star rating reflects the company as a whole, and not its universal life insurance policies specifically. | ||
The best universal life insurance
🩺 Best for health conditions: Guardian
Guardian’s universal life policy comes with a minimum rate of return for your cash value of 2%, plus an option to guarantee no-lapse coverage until age 90.
Guardian may also offer more competitive rates for people with pre-existing conditions and this company also draws fewer consumer complaints than other insurers of its size, according to the National Association of Insurance Commissioners (NAIC).
» Read the full review: Guardian life insurance
🛎️ Best for customer service: Northwestern Mutual
Northwestern Mutual is our pick for exceptional customer satisfaction. It has one of the lowest rates of consumer complaints of all the life insurers NerdWallet evaluates, according to NAIC data. Northwestern Mutual has also received top marks in JD Power’s U.S. Life Insurance Study every year for the last decade.
Northwestern Mutual’s Custom Universal Life policy has a built-in accelerated death benefit rider, which means you can access part of your payout early if you’re diagnosed with a terminal illness.
» Read the full review: Northwestern Mutual life insurance
📑 Best for policy features: MassMutual
MassMutual sells a survivorship version of universal life insurance. A survivorship or joint life insurance policy covers two people — typically spouses — and pays out when the second person dies.
MassMutual’s Universal Life Guard policy has a no-lapse guarantee that you can customize to last until your death or for shorter periods. You can also add no-cost riders that allow you to tap into your death benefit early if you’re diagnosed with a terminal or chronic illness. These riders are a form of life insurance living benefits that are designed to help you take advantage of your coverage while you're still alive.
» Read the full review: MassMutual life insurance
⌛ Best no-lapse guarantee: Pacific Life
Pacific Life’s Venture UL 2 policy comes with a no-lapse guarantee up to age 90. This means as long as you pay the minimum premiums, your coverage won’t lapse during this time period. You may be able to extend this guarantee to last your lifetime by opting into an additional rider.
Along with its no-lapse guarantee options and generous coverage limits, Pacific Life offers a long-term care rider you can add for a fee. This rider can help pay for care expenses if you get to a point where you can’t do basic daily activities on your own.
» Read the full review: Pacific Life life insurance
Frequently Asked Questions
What are the downsides of universal life insurance?
Universal policies typically don't have fixed interest rates, so they are less predictable than whole life insurance policies. If you miss a payment on a universal life policy or don’t contribute enough to the cash value, you may end up making several large payments to keep the coverage.
Is universal life insurance worth it?
If you want flexible premiums and permanent coverage, universal life insurance may be worth it. Be aware that universal life is typically more expensive than term life insurance. Term life insurance is affordable and sufficient for most families.
What is group universal life insurance?
Group universal life insurance is a type of universal coverage sometimes offered to employees as part of their workplace benefits. Coverage details vary among employers and insurers.
Can you cash out a universal life insurance (UL) policy?
Like other types of permanent life insurance, you can cash out a universal life insurance policy. You’ll typically receive what insurers call the “surrender” value of the policy. This is the amount of cash value you’ve built minus any fees.
Keep in mind that cashing out or surrendering your life insurance policy cancels your coverage and it could affect your taxes. You may want to consider borrowing against the cash value of your universal life policy instead.
