From the first day the policy is in effect, universal life provides a death benefit to help protect your family’s financial wellbeing – and the cash value can provide numerous advantages while you’re still alive. You can borrow money against it, use it to pay premiums, or even surrender your policy for cash to live on in retirement.2 It can also serve as a powerful estate planning tool.3 However, the death benefit in a universal life insurance policy is adjustable, and cash value growth isn’t guaranteed – in part because they’re affected by the premiums you decide to pay into the policy. On the other hand, the payment flexibility can make the advantages of a permanent insurance policy easier to obtain – especially for business owners and sales-related professionals whose income varies from year to year.

How universal life insurance works

There are two parts to a universal life premium payment: a cost of insurance component (or COI) and a cash value component. Depending on the insurance policy, there’s an upper and lower limit to how much the total premium amount can be.

The COI covers the cost of providing the death benefit and administrative fees, and that is typically the minimum premium amount needed to keep the policy in effect. The COI rises over time because it is mainly based on the policyholder’s age. Any premiums paid over the COI amount add to the policy’s cash value, subject to the limits in the policy. 

Cash value growth

While a universal life policy doesn’t pay dividends like a Guardian whole life policy, it can provide cash value growth along with similar tax deferral, loan collateral, and premium payment benefits. Different types of universal life policies calculate cash growth in different ways: Standard policies provide an interest rate that can vary but won’t go below a set minimum. With Guardian, that interest rate is tied to the insurance company’s general account assets but is guaranteed never to be lower than 2.5% annually – and that interest rate can potentially go higher. 

It’s important to know that minimum premium payments reduce the accumulation of cash value. As cost of insurance rises over time, this can even cause cash value erosion, to the point that you may need to pay higher premiums in later years to keep your coverage. That’s why many people choose to build cash value by paying maximum premiums for the first several years – then using their cash value if needed to help lower premium costs later on.

Tax advantages

As with other kinds of permanent life insurance, the cash value in a universal life policy grows on a tax-deferred basis, so no taxes are paid on current earnings or interest. You can access these funds through tax-favored policy loans or withdrawals (in most cases). Also, the death benefit is paid income-tax-free to beneficiaries. Even for those in a modest tax bracket, the tax savings from these life insurance benefits can be substantial.

Benefits of universal life insurance

  • Lifetime protection. Universal life coverage doesn’t expire at the end of a set term – it provides permanent, life-long financial protection for your beneficiaries. As long as you keep the account in good standing with a positive cash value amount, your coverage can’t be canceled. A term life insurance policy provides a guaranteed death benefit for a set term, but can become more expensive as you grow older and can be harder to get. With universal life insurance, you’re covered for life, whether your health deteriorates or not – and the tax-free death benefit paid to your family is guaranteed.
  • Cash value accumulation. Since universal life is permanent insurance, you can have a built-in portion of money that grows over time and earns interest – the cash value. You can borrow against this cash value as a loan, apply it to policy charges, or even surrender the policy for cash to live on in retirement. However, the flexibility and freedom of universal life also mean that there are fewer guarantees compared to a whole life policy: As you use your universal life cash value, it will affect the amount your family receives when you’re gone, or even cause your insurance coverage to lapse, so you should stay in contact with your financial professional to help make sure your policy continues to meet your needs.
  • More flexibility in payments. Unlike a whole life policy with fixed premium payments that don’t vary, a universal life insurance policy lets you raise or lower your payments as you see fit, within the limits of the policy. Paying less could eventually result in the need to pay higher premiums in later years to keep your coverage – but that flexibility can also make it easier to keep your policy in force over the years.
  • Tax advantaged. Interest earned within the account is tax-deferred, so cash value isn’t taxed while it’s growing – helping it grow even faster. As tax policies and rates may vary depending upon IRS requirements and your income, be sure to review these with your financial and tax professionals.
  • Options to enhance your coverage. Guardian universal life policies come with optional provisions, or riders, that can customize your policy to your individual needs. You can choose riders to add long-term care as you grow older, extend coverage to your spouse, or let you use the death benefit for care if you develop a critical illness.4

Variable universal life insurance

Looking for an opportunity for greater cash value growth? A variable universal life policy can give you the same kind of lifetime protection and payment flexibility as a standard policy with more investment options: you can invest part or all of your cash value in the stock market with grouped investments that are similar to mutual funds. However, with greater opportunity, there’s also more risk, including the possibility of losing part or all of your principal.5

This type of policy also requires a degree of oversight: Guardian provides an array of investment options to suit your risk tolerance, and you have to choose and manage investments as you would in a brokerage account. Talk to your financial professional to see if variable universal life is a good fit for your needs.

Survivorship universal life 

The decision to purchase life insurance is typically driven by a desire to protect the people closest to you while leaving a legacy for the next generation. With this coverage, the surviving spouse has the option to access cash value if needed after the first spouse dies. While that can affect the death benefit amount, as long as the account stays positive, a tax-free death benefit will still be paid to the heirs after the second death.

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How universal life insurance compares to other coverage options

Universal life insurance vs. whole life insurance

Both types of policies provide permanent life insurance protection with a cash value investment component that can grow over time, but universal life offers more flexibility to deal with changing life circumstances. You can choose to raise or lower your premium payments within a certain range, and with a variable universal policy, you have more investment options that may help your cash value grow faster.

But there are downsides as well: universal policies are more complex and need to be managed to some degree if only to ensure that your cash value doesn’t drop below a minimum threshold. Your cash value can stop growing or even go down if your underlying investments don’t do well. And if you only make minimum premium payments, that can lead to cash value erosion – forcing you to make higher payments later on, lower the death benefit amount or forego your coverage altogether.

Whole life policies can be simpler in comparison, with level premiums, more cash growth guarantees, and fewer investing options.6 While not guaranteed, Guardian can also provide dividends to whole life policyholders because it is a mutual company, which can help accelerate cash value growth.7 However, whole life coverage also tends to be more expensive, in part because it allows for more guarantees compared to a universal life policy.

Universal life insurance vs. term life insurance

Term life is the simplest, purest form of life insurance protection: You pay a set monthly premium for 10, 15, 20, or 30 years, and if you pass away during that term, a benefit is paid to your family. There’s no cash value component and nothing that needs to be managed. The downside is that term is temporary coverage – once the term policy expires, you have to consider applying for new coverage at a potentially higher cost or go without. It also provides very limited flexibility to deal with changing life circumstances – typically, the only substantial change you can make is to convert term to a permanent policy.

By contrast, universal life provides a vast array of financial protection options that can last a lifetime. You have access to the financial benefits that come with having cash value, plus flexible premiums that let you adjust payments as your income goes up or down over the years. Variable UL adds the potential for upside growth (and risks) tied to equity investments. 


Universal Life Insurance

Whole Life 

Term Life 

Coverage period

Permanent life-long protection

Permanent life-long protection

Limited to a specific term (typically 10-30 years)


Can vary



Builds cash value

Yes, but not guaranteed

Yes, with guarantees







More expensive than term; but often less than whole

More expensive than term

Less expensive than whole or universal

Tax-free death benefit




Investment options

Standard – No

Variable – Yes




Primary uses

Death benefit; tax-deferred asset accumulation; tax-advantaged wealth preservation and transfer

Death benefit; tax-deferred asset accumulation; tax-advantaged wealth preservation and transfer

Death benefit

How to get a universal life insurance policy

A universal life insurance policy can be a powerful financial tool that can help protect your family’s financial well-being for decades to come, with the flexibility to help you build assets, deal with life’s uncertainties, and even pass on wealth to the next generation. Each policy is individualized to the policyholder’s needs and situation, and while premiums are flexible, a healthy 40-year old male can generally expect to pay $8,000 - $10,000 a year for a $1,000,000 policy. But guidance is needed to arrive at the right solution for your needs. If you think this type of insurance policy is right for you, discuss your situation with an insurance professional or financial professional with experience in permanent life protection. If you don’t know such a professional, ask a friend or colleague for a recommendation. Or, Guardian can connect you to a financial representative who can help. 

Frequently asked questions about universal life insurance coverage

What are the benefits of universal life insurance?

Universal life is a flexible way to get permanent life insurance protection and build cash value because you can raise or lower payments within certain limits set by the policy. It can be a coverage solution to consider for people with income that varies from year to year.

What are the disadvantages of universal life insurance?

With more options than term or even whole life coverage, a universal life policy can be complex, and the policy needs to be managed: you need to determine how much you want to pay for premiums, and with variable universal life you also have to make investment choices. Those variables, along with a cost of insurance that increases over time, can affect and even detract from the value of your cash value account. You also have to keep an eye on your account value over time: If it goes down to zero, your premiums could go up, or coverage could be canceled. 

What is the difference between whole and universal life insurance?

A universal life insurance policy provides many of the same permanent protection and benefits as whole coverage along with added features. In addition to flexible premiums, some universal life policies let you invest your cash value in a variety of market-based investment options, giving you the potential for more growth. On the other hand, universal life offers fewer (and/or lower) cash value growth guarantees. 

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1 Universal Life Insurance may lapse prematurely due to inadequate funding (low or no premium), increase in cost of insurance rates as the insured grows older, and a low interest crediting rate. This does not apply to universal life policies which have a secondary guarantee, but if the secondary guarantee requirements are not met the policy will most likely lapse.

2 Policy benefits are reduced by any outstanding loan or loan interest and/or withdrawals. Dividends, if any, are affected by policy loans and loan interest. Withdrawals above the cost basis may result in taxable ordinary income. If the policy lapses, or is surrendered, any outstanding loans considered gain in the policy may be subject to ordinary income taxes. If the policy is a Modified Endowment Contract (MEC), loans are treated like withdrawals, but as gain first, subject to ordinary income taxes. If the policy owner is under 59 ½, any taxable withdrawal may also be subject to a 10% federal tax penalty.

3 Guardian, its subsidiaries, agents and employees do not provide tax, legal, or accounting advice. Consult your tax, legal, or accounting professional regarding your individual situation.

4 Riders may incur an additional cost. Riders may not be available in all states.

5 Fixed universal life has non-guaranteed values such interest rates and cost of insurance.

Variable Universal Life products are issued by The Guardian Insurance & Annuity Company, Inc. (GIAC), a Delaware corporation, and distributed by Park Avenue Securities LLC (PAS). GIAC and PAS are located at 10 Hudson Yards, New York, NY 10001, 1-800-441-6455. GIAC and PAS are wholly owned subsidiaries of The Guardian Life Insurance Company of America, New York, NY.

Values in variable investment options will fluctuate daily and may be worth more or less than the original investment. Any individual soliciting these variable life insurance products must be a licensed life insurance agent and a registered representative of the broker/dealer.

Variable products and their underlying investment options are not deposits or obligations of, or guaranteed or endorsed by, any bank or depository institution and are not insured by the Federal Deposit Insurance Corporation (FDIC), the National Credit Union Association, the Federal Reserve Board or any other government agency and involve risk including the possible loss of the principal amount invested. PAS is a member of FINRA, SIPC.

The Guardian Insurance & Annuity Company, Inc. 10 Hudson Yards, New York, New York 10001, 800.441.6455. A wholly owned subsidiary of The Guardian Life Insurance Company of America.

This website is intended for general public use and is for educational purposes only.  By providing this content, Park Avenue Securities LLC is not undertaking to provide any recommendations or investment advice regarding any specific account type, service, investment strategy or product to any specific individual or situation, or to otherwise act in any fiduciary or other capacity.  Please contact a financial professional for guidance and information that is specific to your individual situation.

6 Some whole life polices do not have cash values in the first two years of the policy and don’t pay a dividend until the policy’s third year. Talk to your financial representative and refer to your individual whole life policy illustration for more information.

Permanent life insurance consists of two types: whole life and universal life. Cash value grows in a participating whole life policy through dividends, which are declared annually by the company's board of directors and are not guaranteed. Cash value grows in a universal life policy through credited interest and decreased insurance costs. The cash value of both policy types benefits when the policyholder pays an amount above the required premium.

7 Dividends are not guaranteed. They are declared annually by Guardian’s Board of Directors.