Guaranteed universal life insurance is your best option if you need permanent life insurance coverage, but you cannot afford the high cost of whole life insurance. Guaranteed universal life offers the cost benefits of term life with the security of whole life.
Guaranteed universal life is also called “no lapse” or secondary guarantee universal life. GUL is a hybrid between term and whole life insurance. GUL offers the affordability of term life insurance with the permanence of whole life insurance, with level rates and premiums until age 121.
You have the option of tailoring your guaranteed universal life policy to fit your needs, life expectancy, and budget. In many cases, particularly after the age of 60, GUL can be even more affordable than a term life policy.
In this article, we will explain how guaranteed universal life insurance differs from other types of policies, and the different benefits it can offer, to help you determine if it’s the right type of coverage for your individual needs.
Life insurance is generally divided into two main categories:
- Term Life Insurance
- Permanent Life Insurance
There are two main types of insurance under the umbrella of permanent life insurance:
- Whole Life
- Universal Life
There are several types of Universal Life Insurance:
- Traditional Universal Life
- Indexed Universal Life
- Variable Universal Life
- Guaranteed Universal Life
Term Life Insurance – offers a high death benefit at a low cost. Term insurance is the most affordable life insurance compared to other forms of coverage because it is not designed to last your entire life. It offers coverage for a specific term typically 10, 15, 20 and 30 years then it terminates.
Term insurance rarely provides protection past the age of 80; and most people purchase a term that coincides with their mortgage, planned retirement, or until their children graduate from college.
Permanent Life Insurance – this is designed to last your entire lifetime and provide a death benefit to your beneficiary whenever you pass away.
Permanent life insurance is often purchased to pay for final expenses, help avoid estate taxes and leave an inheritance to the family. There are two types of permanent insurance. The most popular form of permanent insurance is Whole Life and Universal Life.
Whole Life Insurance – is the most expensive type of permanent insurance. Whole life is the first type of permanent life insurance offered by insurance carriers. This product builds cash value on a guaranteed basis. Whole life insurance companies provide healthy applicants $2,000 to 50,000 of coverage without a medical exam. These companies usually ask few health questions, and they review medical records before approving your coverage.
Traditional Universal Life – has an investment component and earns cash value over time. The better the performance of the investment, the higher the cash value on the policy.
This cash value can be used at a later time to finance life insurance premiums, and you can withdraw your cash value from your policy when you need it.
The cost of insurance can increase beyond the amount given on application if the carrier deems it necessary. Universal life is also called adjustable life because the premium payment and death benefit can be adjusted based on the policyholder’s needs.
Variable Universal Life – is a permanent insurance policy in which the cash value can be invested into different accounts like stocks, bonds, and mutual funds. Since the accounts are invested in securities such as stocks, you need to have a securities license to be able to sell variable universal life policies.
Indexed Universal Life – is a similar to variable universal life but the cash value growth is tied to the stock market. The investment component is based on indexes such as the S&P 500 and the Nasdaq 500. You can access this cash value at any time during the length of the policy on a tax-deferred basis.
WHAT IS GUARANTEED UNIVERSAL LIFE INSURANCE?
Guaranteed Universal Life is also known as a GUL. It is a no lapse policy that is the least expensive type of permanent life insurance policy.
A GUL is not whole life insurance, but it provides coverage for your whole life. It has no cash value and works very similar to term life insurance.
Instead of the policy lasting for a specific time duration, a GUL offers a level premium for a particular birthday regardless of any changes to your health or advancing age. Guaranteed universal life insurance is commonly sold until age 90, 95, 100 and even up to age 121.
Unlike traditional universal life insurance, guaranteed universal life insurance does not increase in cost as you get older. It does not require additional money to build an investment through cash value. GUL guarantees a death benefit as long as premiums are paid on time. It’s less expensive than whole life insurance because it does not have a cash value component.
GUL policies are ideal for leaving an inheritance behind, reducing or avoiding estate taxes, paying for final expenses or burial cost or maximizing a pension. Depending on your age guaranteed universal life insurance might be less expensive than a term insurance policy.
FEATURES OF A GUL POLICY
Guaranteed universal life insurance has several features that you need to be aware of to help you decide if this is the right coverage for you.
No Cash Value – Guaranteed universal life was not designed to accumulate cash value like whole life or non-guaranteed universal life insurance. This feature makes GUL more affordable because it functions as term insurance without cash value accumulation.
Level Premiums – the premiums on guaranteed universal life is fixed and guaranteed to remain the same for the life of the policy. They will not increase for any reason. You need to pay your premiums on time to avoid the risk of your policy lapsing.
Coverage to Specified Age – unlike term life that covers for a specific term, guaranteed universal life will provide coverage to a particular age. You can select a policy for the following ages: 90, 95, 100, 110 and 121. The GUL premiums are more expensive as you go up the age brackets (ages 90, 95, 100, 110 or 121).
Level Death Benefit – the death benefit in a guaranteed universal life is lock-in and guaranteed to never decrease for any reason.
Similarities of GUL and Term Insurance
The Guaranteed Universal Life insurance is similar to Term life insurance in some ways.
- Guaranteed Universal life provides level premium that doesn’t increase over the life of the policy
- You choose a fix death benefit with GUL just like you would a Term life.
- You will have to select the duration of your policy with both Term and Guaranteed Universal life.
- GUL and term life are not designed to build cash value
Guaranteed Universal Life is a hybrid between term life and whole life insurance, and it offers the ability to take advantage of the best features of both.
Differences of GUL and Term Life
The major difference between guaranteed universal life and term life is in the way you choose the duration of the policy.
- You need to select coverage to the desired term length in term life insurance. The term lengths you can choose from are 10, 20, 25 and 30 years. The term you select will determine how long your policy will last.
- You are selecting coverage to the desired age with guaranteed universal life insurance. The ages you can choose from are 90, 95, 100, 105 and even 121. The GUL policy will provide coverage up to that age.
Similarities of GUL and Whole Life Insurance
- The policy never expires. You pay the premium on time, and you get lifetime coverage.
- The death benefit is fixed. The death benefit will never decrease for any reason.
- Premiums are lock-in and will stay the same for the life of the policy.
Differences of GUL and Whole Life
- Whole life insurance has a cash value component. Guaranteed universal doesn’t have a cash value component.
- Whole life insurance Cash value can be used to pay premiums and can be borrowed against.
GUARANTEED UNIVERSAL LIFE INSURANCE PROS
Let’s look at the pros of guaranteed universal life to understand its benefits better:
The premium will not change, even as you get older or if your health changes. The cost of coverage for a non-guaranteed policy often increases every year or two.
It causes a problem in seniors’ finances at a time when they do not have the capacity to increase their income and afford a more expensive policy. With a guaranteed universal life your premiums are fixed to age 90, 95, 100, or even 121.
Guaranteed universal life is more affordable than a whole life policy. When you buy a non-guaranteed universal life or whole life policies, you will pay extra money to build your cash value.
To accommodate cash value, universal life and whole life have a higher up-front cost compared to GUL – up to four times the cost of coverage per month. The worst part is, the cash value is lost when you die. It does not go to your beneficiary – only the death benefit.
The Coverage isn’t tied to an investment
Guaranteed universal life is not tied to any investment scheme. In order to retain the same rate for non-guaranteed policy, the investment must perform well. Unfortunately, many policies don’t do as well as expected. When this happens, the cost of the policy increases as you get older and you will also lose money on your investment.
Guaranteed universal life, does not involve any investment component. You are only paying for the coverage you applied, and your rates will not change as you get older.
You won’t have the risk of losing coverage with guaranteed universal life because the death benefit is guaranteed never to decrease. The death benefit you applied for will be the amount your beneficiaries will receive when you pass away.
GUARANTEED UNIVERSAL LIFE INSURANCE CONS
As with any policy, there are some negative issues with guaranteed universal life policy:
GUL costs more than Term life insurance
Although premiums are lower than whole life or other permanent insurance policies, GUL is generally higher than term insurance.
Term life is the least expensive type of life insurance because it terminates after a specific term. While the cost of GUL is higher than term life, coverage is secured to a very late age, even up to age 121.
No Cash Value
If you like investing with life insurance, you might be uninspired by guaranteed universal life because it does not have a cash value component. The idea of being able to borrow from cash value is attractive, but this is a loan that needs to be paid. The death benefit will be reduced if the loan is not paid off with interest.
Timeliness of premium payments
The biggest con of guaranteed universal life is the timeliness of premium payment is critical to maintaining coverage. Permanent life insurance that contains cash value component can provide a source to pay the premium on time. A missed or late premium payment can endanger the policy and can cause it to lapse.
Unlike whole life policies, guaranteed universal life requires a medical exam. If you’re a busy person, this might seem like a burden, but if you’re in good health, the medical exam will help you get better rates on life insurance. Insurance companies use medical exams to assess risk, and when you show them you’re a lower risk, they are more willing to offer more favorable rates.
HOW TO APPLY FOR GUL POLICY
The process of applying for guaranteed universal life insurance is the same as any standard life insurance policy. You will have to complete an application form and take a medical examination which can be taken in the comfort of your home or your office.
To get the application process started, we always recommend working with an independent agency that has access to many A-rated insurance companies.
At Life Wealth Win, our agents are experts at pre-qualification underwriting which allows us to provide accurate quotes up front. We work with more than 40 companies and will be able to match your policy based on your age, health and coverage needs.
We will compare rates to determine your best option, and then we will complete your application over the phone and schedule your free medical exam. After you complete the physical screening, we will follow up with the insurance company until your policy is approved.
The approval process for GUL takes typically 6 to 8 weeks. During this time, the laboratory results will be assessed by the underwriters. After reviewing your lab results and additional records from your doctor, the underwriter will approve your application and assign you with a risk class to determine your amount of coverage.
Once your policy is approved, you’ll have the opportunity to accept or decline your policy. You have a 30 day “free look” period to make the decision. During this time, you can cancel your coverage for a full refund.
If you’re considering buying guaranteed universal life insurance, shopping the market is a must. We will help you shop the market to find the best option for you. Call us at (888) 435-4342 if you’d like to get accurate quotes based on your age and health profile.