What Is Universal Life Insurance? The Guide to Costs, Benefits, and Types of UL Insurance for Expats

They include the added benefit of serving as a flexible savings and investment vehicle, letting you access accumulated value through withdrawals or policy loans (subject to tax rules and policy conditions) for personal expenses during your lifetime. But what is universal life insurance, and how does it work?

In this guide, we’ll answer these questions and provide information on UL insurance costs, policy charges, funding flexibility, potential tax treatment, policy maturity ages, and death benefits.

We’ll also introduce you to different types of UL insurance, outline its pros and cons, and explain who needs universal life insurance. — particularly globally mobile or high-net-worth investors comfortable with market-linked returns.

What Is a Universal Life Insurance Policy?

A universal life insurance policy is best described as a form of permanent life insurance that provides coverage for your entire lifetime, as long as you maintain sufficient premium payments to cover the policy’s ongoing cost of insurance and charges.

It also builds a cash value component that can grow on a tax-deferred basis in some jurisdictions, meaning you can access it through withdrawals or policy loans, subject to tax and policy conditions.

Unlike other life insurance types, such as whole life insurance, universal life (UL) insurance premiums are flexible within certain limits – you can increase or reduce them based on your needs and the policy’s minimum funding requirements.

This flexibility can be useful for expats or globally mobile professionals with variable income, provided the policy remains adequately funded to prevent lapse.

How Does a Universal Life Insurance Policy Work?

When you take out a universal life (UL) insurance policy, you pay premiums during your lifetime. When you die, the insurance company pays out a lump-sum death benefit to your beneficiaries.

The universal life insurance premiums are split into two parts:

1. Cost of insurance (COI): This is the monthly mortality charge required to provide the death-benefit protection and cover other policy expenses. Administrative and expense charges are separate from the COI. The COI amount depends on factors such as your age, underwriting class, and the net amount at risk.
2. Universal life insurance cash value: The remaining portion of each premium (after policy charges) is allocated to the policy’s cash-value account, where it can accumulate on a tax-deferred basis in certain jurisdictions. The credited interest rate or growth depends on the policy type. Traditional UL usually credits a declared rate subject to a guaranteed minimum (often around 1–3%), while variable or indexed UL policies link performance to market investments or indexes.

You can access your cash value through withdrawals or policy loans, subject to policy conditions and potential tax implications. In the US, withdrawals up to your paid-in premiums (basis) are generally tax-free; loans are not taxed if the policy is not a Modified Endowment Contract (MEC) and remains in force. If the policy lapses with loans outstanding, or becomes a MEC, gains may become taxable.

In the United Kingdom, gains on partial surrenders or withdrawals can create a “chargeable event” subject to income tax, although top-slicing relief may reduce the effective rate. Death-benefit proceeds are normally free of income tax but may be subject to Inheritance Tax unless the policy is held in trust.

In Australia, if the policy is held outside superannuation, proceeds are generally tax-free after ten years under section 26AH of the Income Tax Assessment Act 1936; if benefits are paid within the first ten policy years, part of the gain may be assessable. Policies inside superannuation follow separate rules, and death benefits paid to non-dependants can be taxable.

UL insurance allows premium flexibility, meaning you can pay more or less than the planned premium, or even pause payments temporarily, provided sufficient cash value remains to cover the monthly COI and policy charges.

If the cash value is depleted, the policy may lapse. Maintaining adequate cash value becomes increasingly important as COI charges rise with age.

Does Universal Life Insurance Expire?

Your UL insurance can lapse if you underpay or skip premiums for an extended period and your cash value cannot support the COI and charges.

A policy can also mature at the age defined by the insurer, commonly age 121 under modern mortality tables. Some older contracts mature earlier (e.g. age 95 or 100). At maturity, the policy may either continue coverage, pay out the cash value, or endow for the death-benefit amount, depending on policy design. Tax treatment of maturity proceeds varies by jurisdiction and contract type.

What Determines the Universal Life Insurance Cost?

The cost of a UL policy depends on age, health, gender, coverage amount, underwriting class, product type, and selected riders or guarantees. It does not directly depend on the general “economy” at purchase.

Because UL is a flexible-premium policy, annual outlay varies by funding strategy and performance assumptions. Representative premiums can only be estimated from a carrier-specific, underwritten illustration.

What Are the Universal Life Insurance Fees?

In addition to the COI, UL insurance typically includes the following policy charges:

1. Premium load: A percentage deducted from each premium to cover premium taxes, distribution costs, and expenses. Actual rates vary by insurer and product, and may be tiered by premium size.
2. Policy or administrative fee: A regular monthly or annual charge covering administrative costs; the structure and amount are product-specific rather than a fixed $50–$100.
3. Surrender charge: A declining charge applied if you surrender the policy or make certain withdrawals during the early policy years (often within 10–15 years). The charge is deducted from your cash value and reduces the amount available for withdrawal or policy loans.

There is no universal “per-$1,000 terminal fee” as sometimes described; instead, most policies use a combination of COI, policy charges, and surrender charges.

Once surrender charges phase out (typically after the scheduled period), your policy’s cash value becomes fully accessible, subject to any outstanding loans or policy conditions.

What Kind of Death Benefit Does a Universal Life Insurance Policy Have?

When you die, your beneficiaries receive a death benefit that is generally income-tax-free in the US. However, in the United Kingdom and Australia, treatment differs—proceeds are usually free of income tax, but may be subject to estate or inheritance tax (UK) or to assessable income rules if paid within the first ten policy years (Australia).

You can usually choose from two main types of death-benefit options:

1. Level death benefit (Option A): The death-benefit amount remains constant throughout the policy’s life. This means that if you purchase coverage of $200,000, your beneficiaries receive $200,000, regardless of how much universal life insurance cash value you have accumulated.
2. Increasing death benefit (Option B): The death benefit equals the base face amount plus the accumulated cash value. For example, if your face amount is $200,000 and your cash value is $100,000, your beneficiaries would receive $300,000 at death. However, premiums and COI charges are higher for this option because the total risk amount increases as cash value grows.

Some policies may also allow you to adjust the death-benefit option during the policy term, subject to insurer approval and minimum coverage limits.

You can decrease your universal life insurance death benefit coverage if you no longer need as much protection or want to reduce ongoing premiums. Increases, however, generally require new underwriting or evidence of insurability.

Does Universal Life Insurance Have a Guaranteed Death Benefit?

Traditional universal life insuranceUL policies do not automatically guarantee the death benefit for life. Because premiums are flexible, insufficient funding or excessive cash-value withdrawals can cause the policy to lapse if the cash value cannot cover the ongoing COI and charges, leaving beneficiaries with no payout.

Some policy types, such as guaranteed universal life (GUL), offer a contractually guaranteed death benefit to a specified age (often age 90, 100, or 121) provided minimum premiums are paid on schedule. These policies typically offer less flexibility and limited cash-value accumulation, but greater long-term certainty of payout.

To ensure you choose the right structure for your goals, speak with a qualified financial adviser experienced in cross-border life-insurance planning, such as the team at Titan Wealth International.

What Are the Types of Universal Life Insurance?

Besides traditional universal life insurance that we’ve discussed so far, there are several other types of UL policies you can purchase depending on your financial goals and risk tolerance. The main three are:

1. Guaranteed universal life (GUL) Insurance
2. Indexed universal life (IUL) Insurance
3. Variable universal life (VUL) Insurance

Guaranteed Universal Life Insurance

Guaranteed universal life (GUL) insurance provides lifelong coverage with a contractually guaranteed death benefit, but places minimal emphasis on cash-value accumulation.

Unlike other UL policies, GUL does not typically offer meaningful market-linked growth—any cash-value buildup is limited and credited at a declared rate, often close to the guaranteed minimum rate specified in the contract.

GUL’s guaranteed structure allows policyholders to know exactly how long coverage will last—often to age 90, 100, or 121—provided all scheduled premiums are paid. This makes it suitable for individuals seeking low-volatility, estate-planning certainty, or a known death-benefit cost, rather than for those seeking investment performance.

Indexed Universal Life Insurance

The growth of your universal life insurance cash value in indexed universal life (IUL) insurance is linked to the performance of one or more equity indexes, such as the S&P 500. Your account does not directly invest in the index. Instead, the insurer credits interest based on the index’s movement, subject to caps, participation rates, or spreads that limit both upside and downside.

Because of these crediting methods, the rate credited to your policy will generally be lower than the raw index return, not because of direct “fees,” but because of cap and participation-rate adjustments.

Although returns can fluctuate, most IULs include a minimum guaranteed crediting rate (often between 0% and 1%), which helps protect against market losses. You can also allocate part of your cash value to a fixed-interest account that grows at a declared insurer rate.

IULs are often chosen by policyholders who want potential upside exposure with a level of downside protection, provided they understand the caps, charges, and index-crediting mechanics.

Variable Universal Life Insurance

Variable universal life (VUL) insurance provides permanent coverage combined with investment flexibility through separate account subfunds. You can invest your universal life insurance cash value in a range of variable subaccounts, such as equity, bond, or money market funds. This offers the potential for higher long-term growth, but also full market risk—your cash value will fluctuate daily with the performance of underlying investments.

Because VUL subaccounts are securities, these policies are offered by prospectus in the United States and must comply with SEC and FINRA regulations. For U.S. persons using offshore VUL, investor-control and diversification rules under IRC §817(h) must be satisfied to maintain tax deferral.

VUL typically suits investors with higher risk tolerance, long investment horizons, and other guaranteed assets elsewhere who can manage ongoing funding and market exposure.

In the UK and Australia, returns on the investment component are taxable when realised or on withdrawal under chargeable-event (UK) or section 26AH (Australia) rules, unless the policy qualifies for local exemptions.

Variable-Indexed Universal Life (Hybrid Variants)

Some insurers now offer hybrid UL products that combine indexed-crediting and variable-investment features.

These are sometimes described as variable-indexed UL (VIUL) or VUL with indexed accounts, but this terminology is not standard across the industry.

Product structures and risk profiles differ by carrier and jurisdiction, so investors should review the policy prospectus and regulatory classification before purchase.

What Are the Pros and Cons of Universal Life Insurance?

While UL policies offer benefits for individuals seeking flexible universal life insurance , long-term coverage with a potential to build cash value, you should also consider the risks, fees, and funding requirements before purchasing a policy.

The balance between flexibility and ongoing cost management is critical, especially for expats whose income or residency may change.

Advantages of Universal Life Insurance

The main benefits of universal life insurance include the following:

Disadvantages of Universal Life Insurance

The main drawbacks of traditional UL policies include:

Is Universal Life Insurance Worth It?

Traditional universal life (UL) insurance may be worth considering if you’re looking for:

• Permanent life-insurance protection that can continue for life when adequately funded.
• Flexible premium payments and adjustable death benefits.
• The ability to accumulate universal life insurance cash value that grows on a tax-deferred basis in some jurisdictions.

However, tax-free withdrawals are not automatic. In the US, withdrawals up to your premiums paid (basis) are generally tax-free, but gains may be taxable; in the UK and Australia, partial surrenders can trigger chargeable event (UK) or section 26AH (Australia) assessments.

If you’re seeking guaranteed lifetime death benefits or a more predictable accumulation pattern, guaranteed universal life (GUL) or indexed universal life (IUL) may be better options. Those seeking full market-linked growth potential and are comfortable with higher volatility may consider variable universal life (VUL).

Who Is Universal Life Insurance Good For?

You may consider buying a UL policy if you want the potential to accumulate cash value, the flexibility to customise your coverage amount, and you’re comfortable monitoring and funding the policy regularly to avoid lapse.

A UL policy can be a good choice for expats or globally mobile professionals, as many international UL products offer worldwide coverage, meaning you remain insured regardless of residence, subject to insurer licensing and local tax rules.

This insurance can also be suitable for individuals focused on:

• Estate Planning: You can use UL insurance as part of estate- or inheritance-tax planning, since it provides liquid funds that beneficiaries can use to cover estate taxes or other liabilities. In the UK, placing the policy in trust can prevent proceeds from being counted toward your taxable estate for Inheritance Tax purposes.In Australia, death benefits paid outside superannuation are generally tax-free after ten years under section 26AH, while those within super may be taxable if paid to non-dependants.
• Supplemental Retirement Income: You can access your UL cash value through loans or partial withdrawals, which may provide additional liquidity in retirement. However, these should be managed carefully—overuse of loans or withdrawals can reduce cash value, lower the death benefit, or cause the policy to lapse.
• Business and Key-Person Protection: If you’re a business owner or executive, you can use UL to provide coverage for yourself and key employees, supporting business continuity, buy–sell arrangements, or executive-benefit planning.

Still, consulting a qualified financial adviser with cross-border expertise is the safest way to determine whether UL insurance aligns with your tax residency, estate objectives, and long-term financial goals.