Universal Life Insurance

Universal Life Insurance is a type of permanent life insurance that is based on cash value. Premium payments above the cost of insurance are turned back to the cash value. The monetary value is credited every month and includes interest. The policy is debited each month and any other charges and fees which are taken from the cash value if there is not a premium payment made that month. The interest that goes into the account is determined by the insurance company.

Universal Life is a tax-advantaged way to purchase life insurance. At first, the premium goes beyond the cost of insurance charges. The difference between Universal Life and regular insurance is the Universal life will grow and be tax-deferred as long as the policy remains in force. If the policy is active until death, the cash value will not be taxed at all.

The premiums that are paid into this have already been taxed when you drew you paycheck. The payments are being paid with after-tax money. As long as the policy has not become a Modified Endowment Contract it will have be in a tax deferred status unless some of it is withdrawn.

The death benefits of life insurance policies generally do not face taxation as long as the policy was not received as a result of payment by you to the previous owner of the policy.