Guaranteed Universal Life Insurance (GUL)
Have you thought about buying term insurance but your reluctant having something temporary even though it’s so cheap?
Typically, people who pass on term insurance and then look at the cost of whole life insurance are blown away by the cost of insurance – talk about sticker shock!
Don’t give up because there is a life insurance product that falls in the middle – it isn’t dirt cheap like term yet it doesn’t cost an arm and a leg like whole life. Here, we’ll discuss Guaranteed Universal Life Insurance and look under the hood to see how it works.
How Does Guaranteed Universal Life Insurance (GUL) Work?
For the most part, a GUL policy is fairly simple and easy to understand. It operates like term insurance by guaranteeing a death benefit. The difference, however, is with a GUL the policyholder can customize the coverage period to last much longer than 30-years, which is typically the longest period available for term life insurance. Simply put, you can purchase a Guaranteed Universal Life insurance policy to last a lifetime (just like whole life).
They way a Guaranteed Universal Life Insurance policy works is having the insured overpay for the cost of insurance in the early years so that there will be enough premium and interest to cover the cost of insurance in the later years. This is done by controlling the cash value accumulation and focusing on the death benefit rather than cash accumulation in the policy.
Advantages and Disadvantages of Guaranteed Universal Life Insurance
Without questions, every type of life insurance product has advantages and disadvantages depending on what you want the policy to do for you. For example, a term life insurance policy is advantageous because the premiums are so affordable. However, the disadvantage of term life insurance is that it is temporary which means it will not be a suitable product for a consumer wanting life insurance for a lifetime. Once again, the pros and cons depend on your needs.
Advantages of Guaranteed Universal Life Insurance
- Affordable Coverage – Since the policy is designed to minimize cash accumulation, your premiums will be lower than a traditional universal life policy that is designed to accumulate cash value over time.
- Customized Coverage – The Guaranteed Universal Life policyholder has options when it comes to the age they want to be insured to. You set the policy up to cover you to a certain age instead of a certain term like 90, 95, 100, 105, 110, or age 121. (not sure why you would select any age over 105?)
- Easy to Understand – A Guaranteed Universal Life Insurance policy is much easier to understand than a variable or indexed universal life policy because there are few moving parts to the policy. In fact, like whole life insurance, as long as you pay your periodic premiums on time, your policy will work as intended.
- Level Premiums – Once your GUL is issued and has been structured properly as far as funding, your periodic premium and the death benefit will remain level for the life of the policy that you selected in advance. You premiums are predictable, which is not always the case with traditional, indexed, or variable Universal Life Insurance.
Disadvantages of Guaranteed Universal Life
- Non-flexible Premium Payments. – The premium payments for your Guaranteed Universal Life insurance policy are etched in stone and are not flexible like other types of universal life insurance. You cannot reduce your payments or skip your payments without having to pay substantial catch-up payments to keep your policy in force until the age your selected.
- Cash Value should remain in the cash value account – A Guaranteed Universal Life Insurance policy is designed to accumulate very little cash value. This is how the company keeps its premiums as low as possible. If you take any cash out of your policy, your policy will likely not provide coverage up to the age you selected or it could lapse due to insufficient funding.
- Choosing the wrong length of Coverage – If your intention is to have life insurance coverage for a lifetime, it’s important that you select the appropriate coverage age when you apply for your life insurance. For example, if you elect to purchase a policy to provide coverage to age 95 and you are still living at 95, you’re going to have to come out-of-pocket with enough premium to keep your policy in force to the age you are likely to live to. If you’re still healthy at age 95, you should consider paying in enough premium to keep your policy in force to 105 or even 121 so you won’t outlive your coverage.
How much does Guaranteed Universal Life Insurance Cost?
Like all other life insurance policies, your cost for Guaranteed Universal Life Insurance will primarily depend on your age, your health, your death benefit, and how long you want to your coverage to last.
Here are sample rates for a Guaranteed Issue Universal Life Insurance policy for a healthy male and female non-smoker wanting coverage to age 121:
It’s important to note that purchasing a policy for an age less than 121 will not make a difference in your premium of more than a few dollars each month. For example, in this rate chart, the premium for a 30-year old male for coverage to 121 is only $72.19 but it would only be $1 less per month if the applicant selected age 95 instead.
Guaranteed Universal Life (GUL) vs. Whole Life
Both of these policies are very similar in that they offer lifetime coverage with a guaranteed premium. The 2 main differences between GUL and whole life are:
- Price: GUL is always going to be cheaper than a whole life policy (usually around half the cost).
- Cash Value Accumulation: Whole life insurance is going to build up more cash value than a GUL policy will. GUL policies are designed to give lifetime coverage at an affordable rate.
Guaranteed Universal Life vs. Term Life
Term life insurance is always going to be cheaper, but the coverage only last for a chosen number of years and usually no more than 30, depending on your age. If you are looking for permanent coverage then term life is not the answer.
Is Guaranteed Universal Life Insurance Worth It?
It depends. If you are looking for affordable life insurance that will provide coverage for a lifetime, a GUL policy will likely cost much less over the life of the policy than whole life insurance or traditional universal life insurance. Since today’s interest rates have stayed relatively low over the last 10 years, many companies have elected not to offer GUL but there are still some solid highly-rated insurance carriers out there like Mutual of Omaha, AIG, Sagicor, and others that keep it available for prospective clients that want lifetime coverage at affordable rates. If you have any questions or comments please don’t hesitate to give us a call.