A universal life insurance policy has two main components, a pure insurance component and an investment, or cash, component. Where whole life insurance has an investment portion that feeds into bonds and mortgages, universal life insurance invests its cash segment into money market funds. Cash value is accrued through universal life and forms an accumulation fund that pays for your death benefit. This accumulation fund gets its income from investments, depending on how well these investments perform in the market. Because there is a dependence on the market, the cash value grows at a variable rate.
Flexibility is a main feature of universal life insurance policies.
You can dictate exactly how much and when you will pay premiums. Partial surrenders and loans are also acceptable when concerning the cash value of the policy. It allows you to adjust your premium payments to the rise and fall of personal financial situations. This is compensated through the regulation of your insurance company. Skipped or downsized premiums are balanced by the deducting of money within your accumulation funds in order to maintain your insurance and pay administrative costs.