Without a doubt, Universal Life Insurance is one of the most flexible and useful insurance options available, offering affordability and versatility. This type of insurance was particularly popular in the early 1980s when the plan was first devised based on tax changes, and offered participants the features of both a conventional insurance policy as well as a savings plan. Simply put, from the payments you make, some of your money is going into a savings plan and some into an insurance plan.

One of the original features of the plan was that it allowed the participant to easily adjust the amount of money they were putting into both the savings and the insurance part of the policy. Another advantage is that the amount of the premiums can be easily adjusted – or skipped altogether – unlike the more traditional whole life insurance that usually has fixed payment amounts. Universal Life Insurance tends to offer a higher interest rate and the amounts of the premiums are usually lower than other types of insurance plans.

Universal Life Insurance also has certain tax advantages. The cash value in your insurance policy can accrue interest without the user having to pay taxes on it. And if the insurance premiums are paid with after-tax money, the policy is paid out income tax free in the event of your death. The tax advantages are a huge advantage for those in the higher tax bracket of 25% or more.

There are some disadvantages to Universal Life Insurance. The account value will decrease over time if the charges to administer the account are more than the combined total of your premiums plus profits. You may have to lower your benefits or increase your premiums simply to keep the policy active. Your cash accumulation is taxed heavily if you withdraw from the policy before your death. And ultimately, the amount of cash value accrued will depend largely on the performance of your investments - which is of course, never guaranteed.

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