Structure

• A universal life insurance policy is a one-year term policy with a cash value account. Money is paid into the cash value account and invested by the insurance company. Expenses are deducted from the cash value account. If the cash value account ever falls to zero, the term policy lapses and you lose your insurance. Some universal life policies offer a weak guarantee for the first five or 10 years of the policy, which guarantees that the policy won't lapse regardless of the cash value account balance. Beyond this, the policy has no guarantees.
  
  

Purpose

• A secondary guarantee guarantees the death benefit to the maximum age of the contract, normally age 120, regardless of the policy's actual cash value account. The purpose of the secondary guarantee is to make sure the policy stays in force as intended and the non-guaranteed elements of the policy do not cause the policy to terminate due to an insufficient cash value balance.
  
  

Benefit

• The benefit of a secondary guarantee is that you are assured that your policy never lapses. This guarantee is conditional, however. You must pay the target premium set by the insurer. But, if you do, your policy will guarantee that death benefit. Your family won't have to guess at whether there will be money available for them when you die.
  
  

Consideration

• Universal life insurance with secondary guarantees may not build cash value. If you're not concerned about cash value in your policy, then this is fine. But if you want your policy to build cash value, then a secondary guarantee policy may not be for you. The secondary guarantee policy provides that guarantee due to a reasonable expectation that the cash value will, at some point, fall to zero. Otherwise, no secondary guarantee would be necessary.