Similar to whole life insurance policies, universal life insurance offers customers a chance to save money for later in life as well as determine the price of their premiums. Essentially, the insurance company calculates the cost of insuring an individual and any premiums paid above that amount is credited to the cash value of the policy. This helps the insured build up more cash value in the policy quicker than whole life and will also allow them to decide on the death benefit during the life of the policy.
The cash value available with a universal life insurance policy can also be used to make the premium payments on the policy. There are typically three ways in which the premiums are made, including an initial lump sum payment to pay the policy completely at the start of the policy’s life.