Guaranteed UL vs. Traditional UL
If you have ever researched permanent life insurance, you probably have noticed that universal life insurance or sometimes referred to as adjustable life insurance comes in many different shapes and sizes. You have guaranteed universal life (GUL), traditional universal life (not guaranteed), indexed universal life, and variable life insurance.
In this article we will examine Guaranteed UL vs. Traditional UL. We will explain the pros and cons of each and which one works best for most consumers.
Even though these life insurance products fall under the same umbrella, it’s important to know that non-guaranteed (Traditional UL) and guaranteed (Guaranteed UL) coverage’s are not the same.
If you purchase a traditional universal life insurance policy without knowing how it functions or what it is, you could be subjecting yourself to a potential headache later on.
What is Non-Guaranteed Universal Life (Traditional UL)
A Non-Guaranteed Universal Life Insurance policy or sometimes referred to as Traditional Universal Life is a permanent life insurance policy that lasts your lifetime. The Non-Guaranteed UL has a death benefit like other insurance products, but comes with a cash value component also.
It’s important to understand that the cash value of the policy is not added to the death benefit when the insured dies. The cash value goes back to the company and the insured’s beneficiary receives only the death benefit.
The cash value of the Non-Guaranteed Universal Life policy earns interest based on the insurance company’s yearly earnings. Interests rates are declared each year by the company and our usually only guaranteed for 1 year.
However their is a minimum guaranteed interest rate attached which right now hovers around 2% for most companies.
Non-Guaranteed Universal Life policies started becoming popular in the 80’s and were used to combat the high premiums associated with whole life insurance. The 80’s were when interest rates were at there all time highs of 13% or more.
Having high interest rates were great for consumers at that time, but as we all know interest rates have fallen and now many non-guaranteed universal life policies are now underfunded and many consumers are getting a premium increase notice.
And when we say they are getting a premium increase notice we are not talking about a little increase. According to InvestmentNews, consumers are seeing there premium jump more than 72% per year once they reach age 80. This has led to alot of consumers having to let there policies go because the cost is too much, essentially losing much needed coverage.
See Non-Guaranteed UL policies premiums are not guaranteed and rely on interest earned to keep up with the rising cost of insurance. If interests don’t perform this could lead to a premium increase later on.
IMPORTANT: If you own a universal life product that you bought before the year 2000, it’s important you contact someone to review and make sure this is not going to happen to you.
What is Guaranteed Universal Life Insurance (GUL)?
A Guaranteed UL policy is similar to a whole life insurance policy in that the premiums are guaranteed. With a GUL policy you able to lock in coverage up to a specified age (such as to age 95). It’s important to understand that guaranteed universal life insurance is not whole life.
Guaranteed universal life does not build up cash value like a whole life insurance policy does. It is more similar to a term life insurance policy, except you get pick the age you want coverage to rather than a certain number of years.
Since the Guaranteed UL doesn’t build up much of a cash value, it doesn’t have the expensive fees associated with a Traditional UL policy. Therefore, guaranteed universal life is affordable and a popular choice among consumers looking for permanent protection.
Guaranteed Universal life policies are popular among consumers looking to maximize there pension, estate planning, or leave an inheritance. They also can be used for final expense costs with death benefits as low as $25K.
What are the benefits of Guaranteed Universal Life (GUL)?
Guaranteed Premium & Death Benefit
Probably the biggest benefit of all is knowing that as long as you pay the scheduled premium outlined in your policy, you will have the coverage.
GUL is Cheaper than Whole Life
Not only does GUL come with a guaranteed premium, but it is significantly cheaper than whole life insurance, usually by up to half the cost.
Sample Rates for Male-Non-Tobacco
Sample Rates for Women- Non Tobacco
Less Upfront Costs than Traditional Universal Life
With a Traditional UL or Non-Guaranteed UL, the cash value is a key component to make sure the policy doesn’t have a premium increase. In order to accomplish this, their are much higher up front cost than the Guaranteed UL. In some cases as much as 4 times more each month.
GUL Premiums are Affordable
Even though the Guaranteed UL is a permanent life insurance policy, premiums are affordable especially if you purchase when your younger and healthy.
What are the Drawbacks to Guaranteed Universal Life?
No Cash Value Accumulation
Since GUL products are designed to give you a low cost premium, they do not build up much, if any cash value. Guaranteed Universal Life should be purchased strictly for the death benefit coverage.
No Loans or Withdrawals
Since their is no cash value accumulation, loans and withdrawals are not possible. Most permanent life insurance allows you to borrow or withdraw a portion of the cash value if the need arise, but not GUL.
Comparing Guaranteed UL to Non-Guaranteed UL
Now you know the difference between Guaranteed UL and Non-Guaranteed UL, so when it comes time to buy a life insurance policy you can make an educated decision.
It’s our opinion that the Guaranteed Universal Life product is going to be the best option for most consumers. Most people buy life insurance for the death benefit and not the cash value build up. Also consumers don’t like surprises, like a premium increase, so it’s better to guarantee the premium like the GUL polices do.
As always it is important to consult with an experience independent life insurance agent, like us, before purchasing any life insurance product. An agent will be able to walk you through how each policy works and which one might fit your needs. If we can be of assistance please don’t hesitate to reach out.
Frequently Asked Questions
What is the difference between guaranteed UL better than traditional UL?
A guaranteed UL policy has a guaranteed premium to age 120 and doesn’t build up as much cash value as a traditional UL. A traditional UL doesn’t have a guaranteed premium.
What is a GUL?
GUL stands for guaranteed universal life insurance. These type of products come with a guaranteed premium to age 121.
Can the premium increase on a traditional UL?
Yes the premium can increase if the cash value accumulation doesn’t keep up with the rising cost of insurance each year.
What are the Drawbacks to Guaranteed Universal Life?
-No Cash Value Accumulation
-No Loans or Withdrawals
Should I buy a guaranteed or traditional universal life policy?
If you are looking for a guaranteed premium then buy a GUL, but if cash value is your objective then a traditional UL might fit your need.