How Does A Universal Life Insurance Policy Work? 
Universal Life is a form of permanent life insurance -LRB- cash value life insurance -RRB- . It is also known as Flexible Premium Adjustable Life . This is the official name of this type of product . The key words are `` flexible '' and `` adjustable '' . Premiums are flexible because they can be adjusted upward or downward , subject to an initial minimum premium . You can also skip premiums in future years . You also have a choice of level or increasing death benefit which describes the adjustable nature of the product . Universal life builds cash value that can grow based on a stated fixed interest rate , which may vary over time , but which will never be less than a guaranteed minimum interest rate . Policy costs for administrative expenses and cost of insurance are deducted from the cash value monthly . Where whole life is a `` black box '' product , universal life is `` unbundled '' and transparent in how it operates internally . Universal life is best suited to satisfy the longer-term needs of policy-owners who want premium flexibility and cash value accumulations that reflect current fixed interest rate returns , with a guaranteed minimum interest rate . There are variations on the basic structure such as guaranteed UL or the popular index UL but , aside from how secondary guarantees are calculated or interest is credited , the basic mechanics are the same . 