Life insurance can be bought in many forms and universal life is one of those forms. Universal life insurance is a permanent type of insurance that is based on a cash value. With this type of insurance, the insurer pays a somewhat higher premium than he or she would with a term life policy. A portion of that higher premium is used to pay for the life insurance itself and the remainder is placed into an investment portfolio.
Premiums are usually paid monthly and that portion that is used as investment is credited, with interest to the policyholder’s account. The portion that is used to pay for the insurance itself is deducted from the total amount that is sent in. This is known as the COI or Cost of Insurance portion. In the event no payment is sent in for a month, the amount of the COI is deducted from the cash amount in the account.
The amount of interest that will be credited to the account is determined by the insurer. In many cases, this will be determined by a financial index of some type. Because only the amount of interest credited and not the cash value itself varies, universal life policies offer a stable investment option for some...
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