Universal life insurance is a form of permanent life insurance. It has two components. One part can fund a guaranteed life insurance death benefit of an amount suitable to achieve your insurance goals. The second component allows you to invest additional deposits within your policy. Earnings and growth within your policy are exempt from annual accrual taxation.
Money invested within your policy may be allocated to investment accounts (sometimes called market-index accounts or market-linked accounts) that fluctuate along with the index or fund that they are linked to. The money can also be invested in guaranteed-interest accounts, which provide a fixed interest rate over a period of years. Interest realized on any of these investments does not have to be declared on your income tax return while the money remains inside the tax-exempt life insurance policy. The money in these investments can be used to help pay the cost of insurance, be paid out as an additional death benefit, or can support a policy loan that facilitates access to the money while you are living.
Your policy can be structured to accommodate the amount of money you have available to deposit each year. Generally, there is then some flexibility in the allowed deposit amount, up to a defined maximum each year. The maximum premium will vary according to certain characteristics (e.g., the amount of insurance purchased) and the features of your particular universal life policy (e.g., the type of death benefit pay out).
Universal life insurance offers a double solution, providing death benefits for your beneficiaries and an opportunity for tax-preferred investments while you are still working.
