What characterizes universal life insurance?

Universal life insurance is characterized by its flexible premium structure, which allows policyholders to adjust their premium payments and the amount of death benefit coverage they desire. This type of policy not only provides life insurance coverage but also includes a cash value component that grows over time, often based on market interest rates. This flexibility is a significant feature, as policyholders can modify their contributions, making it adaptable to changing financial circumstances or life events.

The cash value accumulates on a tax-deferred basis, giving policyholders the opportunity to borrow against it or withdraw funds, which further enhances its appeal. Therefore, the defining characteristic of universal life insurance is the integration of a flexible premium system with a dual function of life coverage and an accumulating cash value, helping policyholders address both their insurance and investment needs over time.