Final answer:
Universal life insurance policies combine elements of term life insurance with cash-value life insurance; they provide a death benefit and have a savings component that accumulates cash value over time.
Step-by-step explanation:
Universal life insurance policies are complex financial instruments that combine aspects of term life insurance and cash-value life insurance, offering the benefits of both. The term life component provides a death benefit, which is a payment to beneficiaries upon the insured's death, serving as a financial safety net. Meanwhile, the cash-value component of universal life insurance works as a savings account, growing tax-deferred over time and can be used for wealth accumulation or borrowing purposes.
This unique structure allows policyholders to adjust the premiums and death benefits over time to suit their changing financial needs. This flexibility, along with the potential for earning interest on the cash value, makes universal life insurance a popular choice for those seeking both insurance protection and a method of savings.
It is important to note that universal life insurance requires careful management to ensure that the policy remains active and that premiums paid are sufficient to sustain the death benefit.