A fixed annuity is a contract between an investor (an annuitant) and an insurance company. The investor contributes money to the annuity in exchange for a guaranteed interest rate during the annuity’s accumulation phase and a predictable income stream during its payout phase.
Universal life (UL) insurance is permanent life insurance with an investment savings element and low premiums that are similar to those of term life insurance. Most UL insurance policies contain a flexible-premium option.
A UL insurance option provides more flexibility than whole life insurance. Policyholders can adjust their premiums and death benefits. UL insurance premiums consist of two components: a cost of insurance (COI) amount and a saving component, known as the cash value.
Collected premiums in excess of the COI accumulate within the cash value portion of the policy. Over time the cost of insurance will increase as the insured ages. However, if sufficient, the accumulated cash value will cover the increases in the COI.
A UL insurance policy can accumulate cash value, which earns interest based on the current market or minimum interest rate, whichever is greater. As cash value accumulates, policyholders may access a portion of the cash value without affecting the guaranteed death benefit.