Fixed, or basic universal life insurance, is permanent life insurance coverage with a savings element that earns a fixed income market-based rate of return and flexible premiums.
People who buy fixed universal life insurance want long-term death benefit protection, coupled with the ability to make flexible premium payments to maximize the policy’s cash value, which generates steady returns.
Uses of fixed universal life insurance include:
When a policy owner pays the premium for a fixed universal life insurance policy, part of the premium is allocated to pay for the cost of the term life insurance in the policy, and the rest goes into the general account of the insurance company, which invests the proceeds to earn interest for the policy owner.
If the policy owner does not pay the premium, then the cost of insurance to provide the death benefit is deducted from the cash value. As long as the cash value exceeds the amount of premium due, either from earnings or additional payments, the policy stays active.