Guaranteed universal policies are a great option for people who don't want to outlive term coverage, but prefer to keep their investments separate.
A GUL policy secures permanent life insurance coverage but without the high cost and complexity that comes with regular universal life insurance. They are a nice middle ground between universal and term life insurance.
The most important stuff in 30 seconds or less:
- Guaranteed fixed payments
- Guaranteed fixed death benefit for "life" (choose to age 90, 95, 100, 105, 110, 121)
- Easy to understand, not complex like universal life insurance
- Much cheaper than standard universal or whole life
- Does not build cash value with an investment component
- More expensive than basic term life policies
- Less flexibility on premium payments
A little more detail about why you might consider guaranteed universal instead of term or regular universal life insurance...
We'll cover in detail these benefits to guaranteed "no lapse" universal policies:
We'll also explore these drawbacks to GUL life insurance:
Reasons to Consider Guaranteed Universal Life Insurance
Let's explore all the good things about no lapse GUL life, specifically as it compares to non-guaranteed universal policies.
No Market Risk
With whole life or regular (non-guaranteed) universal policies, the future cash value will be tied to the performance of some underlying investments.
These investments have risk.
The nice and rosy projections that your salesperson shows you require the investments to grow at a certain rate. This is often based on historical performance. It may continue, but it may not, just be prepared for that.
But with guaranteed universal, it doesn't matter what the market or interest rates do. Most policies do have language about a minimum guaranteed interest rate of 2% but this is just to make everything work. And since it's guaranteed, you don't have to worry about it!
You always know EXACTLY what your monthly insurance bill will be.
When you sign the policy, you choose the age to which it will run. Typical choices with most companies include age 90, 95, 100, 105, 110, or 121.
Then you pay that exact same payment until you either:
- Decide to cancel the policy
- Are fortunate enough to live to that extreme age
But in a non-guaranteed universal policy...
The cost of coverage may increase over time. If the cash accumulation doesn't perform as expected, there are clauses in the policy that kick in for the adjustable cost of insurance.
Nicholas Vertullo, an 82-year-old Long-Island retiree interviewed by The Wall Street Journal last August, reported that his premiums for three universal life policies had more than doubled to an almost unimaginable $30,000 a year (for a $500,000 death benefit). He’d paid into the policies, on time, he said, for almost 30 years.
Guaranteed universal life insurance policies have a payment you can plan for, and know it won't change, no matter what happens with the investment markets and interest rates.
Cost of GUL
The cost of guaranteed universal life premiums will always be less compared to non-guaranteed. When purchasing a regular universal product, you have to pay extra in order to build the cash accumulation value.
The idea of being able to draw from the cash value is attractive but this is a loan, and it will reduce the death benefit until that loan is paid off with interest.
Life insurance companies are the in the business of investing and making money with your premiums. If you take some of that out, they make less profit so expect to pay up for this benefit.
If you have trouble paying back the loan, this could jeopardize your coverage altogether.
Non-guaranteed universal policies can end up costing 3-4 times as much as a guaranteed universal policy.
If additional investment is important to you, we suggest going with a GUL policy and then investing any extra funds you have saved. This way you know the death benefit will always be there.
No Complexity, Easy to Understand
Guaranteed universal policies have a very simple design. You pick the amount of coverage you want and to what age it will remain in force, that's it. Since you are only paying for the coverage you need, the premiums are locked in and won't increase as you age.
On the other hand...
Non-guaranteed universal has lots of moving parts and options due to the investment component, cash accumulation, and very real possibility of increased premiums.
Easy to Compare Life Insurance Companies
Since no-lapse GUL doesn't have all the frills and choices, it's easy to compare companies and pricing when shopping. A GUL to age 110 policy for 500K death benefit is pretty much the same at company A as it is at company B.
But be careful:
That does not mean you should just choose the company that shows that lowest rates. That is actually a TERRIBLE idea.
Even though it's easy to compare GUL quotes at different companies, you still must apply at the company that will look at you most favorably based on your lifestyle and health history. Failure to do so can result in much higher rates or even decline.
This is where a knowledgeable independent agent can help. They aren't married to any one company and can suggest the best one based on your personal situation. There is no "best" life insurance company. Sorry, doesn't exist.
Drawbacks to Guaranteed Universal Life Insurance
GUL is a great product for many people but to make the best decision, you need to be aware of its drawbacks in relation to term or non-guaranteed universal life insurance.
Keep in mind that some of the "cons" might really be benefits, depending on your needs.
Does Not Build Cash Value
In some cases, GUL policies may build a small amount of cash accumulation but it's small and not something to count on.
When you build cash value in life insurance, it allows you to do things such as borrowing against that accumulation. That money can be used to make premium payments or for whatever you like.
Keep in mind:
That loan must be paid back, with interest. Until it is paid back, it's offset against your death benefit.
More Expensive than Term Life Insurance
Both term and GUL have fixed premium payments however you will always pay more for guaranteed universal life policies.
The reason is simple:
With term, you only have coverage for a set number of years, typically 10/20/30. After that term is up, you must seek out new coverage or pay much higher rates, based on your new age, to keep renewing that policy annually.
GUL allows you to go all the way past age 100 with guaranteed coverage. This means your coverage stays in place (as long as you make the payments) no matter what health issues you encounter later in life.
For this benefit, there is of course, an additional cost.
For $500,000 death benefit, a 50-year-old male in good health will pay around $160/mo for a 30-year term plan. That same person will pay about $380/mo for a guaranteed universal policy that runs to age 100. Cost is more than twice as expensive but the big difference is coverage to age 100 instead of 80.
It's very hard to directly compare term to GUL since the death benefit for your beneficiaries is locked in for so much longer. Those later years are the years where people often can't get any life insurance, or just smaller amounts (up to 50K) for burial and other final expenses.
Less Flexibility on Payments
One of the nice benefits that regular universal policies (including indexed universal) have is flexibility.
You can skip a payment by accessing the built up cash value in your policy. With GUL, you don't have this option so it's very important to make sure you stay current on payments.
Need More Help?
The best advice I can give is to always work with an independent agent. If you call an insurance company direct, they'll only push their products on you, and you save nothing. Rates are fixed by your state laws.
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