This article will review one of the most popular types of permanent insurance – Guaranteed Universal Life Insurance. We often refer to this product as “term to age 100“, which we will expand on later.
Quick Tip: To instantly compare rates for the leading carriers offering Guaranteed Universal Life insurance, please check out the quote engine to the left of this page. Under type of insurance, click on “Lifetime” in the drop down box.
First off, let’s take a look at the main categories of life insurance: Term Life Insurance and Permanent Life Insurance. Term life insurance is designed to last for a specified period of time, such as 10, 15, 20 or 30 years. At the end of the term period, the coverage terminates or renews on an annual basis at prohibitively high rates.
Permanent Life Insurance
Permanent insurance, as the name implies, is designed to last for the remainder of the insured’s life. There are several types of permanent insurance. The most well known types of permanent insurance are Whole Life and Universal Life.
Whole Life is generally the most expensive type of permanent insurance. Whole life was the first type of permanent life insurance offered by carriers. This product is designed to build cash value on a guaranteed basis.
Universal Life is a product that has an investment component and earns cash value. The better the performance, the higher the cash value. However, there are risks with Universal Life, even though there is a proposed rate of return (based on current interest rates) and a guaranteed rate of return
Even with a guaranteed rate of return, the cost of insurance (COI) can increase beyond the illustrated amount if the carrier deems it necessary. There are other fees that can increase.
Sometimes Universal Life is called Adjustable Life because of the product’s flexibility. The premium payments and death benefit can be adjusted based on the needs of the policyholder.
Without getting into all the details of how Universal Life works, suffice it to say that there is not a guarantee that the premiums will stay level. With many investment products, there are risks associated with the opportunity to earn more money. Universal Life insurance is no different.
Different Types of Universal Life Insurance
There are four main types of Universal Life Insurance. The different types of insurance are listed below based on risk, with the GUL as the policy with the least amount of risk. Brief descriptions of these policies follow the list.
- Guaranteed Universal Life (GUL).
- Universal Life (UL); Also known as Adjustable Life.
- Indexed Universal Life (IUL)
- Variable Universal LIfe (VUL)
With Universal Life, the investment component is rather conservative. The rates of return are similar to money market accounts. This product originated in the 1980s when the interest rates were very high. Unfortunately, many UL policies were sold based on unrealistically high interest rates and policyholders later discovered their policies required a lot more premium to stay in force.
Universal Life, like the next two products – VUL and IUL – is designed to provide permanent life insurance cash value for retirement, college savings or other purposes. The earnings can be withdrawn on a tax-deferred basis.
Variable Universal Life is the most aggressive (and riskiest) of the UL policies. The investments (or sub accounts) are selected by the insured in a way that is similar to investing in mutual funds. A common approach is to “overfund” these policies to generate a lot of cash value.
Indexed Universal Life is similar to a VUL, however, the investment component is based on indexes such as the S&P 500. There are certain guarantees involved in IUL products that can make them attractive. Some of the risk is mitigated by investing in an index rather than selecting mutual funds.
Guaranteed Universal Life involves the least amount of risk. Although some GUL policies can accumulate cash value, the main purpose of the GUL is to provide basic, permanent life insurance. Because of the guarantees, it makes it easier to compare the best GUL policies in apples-to-apples quotes.
The Benefits of Guaranteed Universal Life
Check out the Pros and Cons of Guaranteed Universal Life by clicking here.
Guaranteed Universal Life insurance works well for people who want a reasonably priced permanent life insurance without the investment component. In other words, they don’t want to put their life insurance at risk. Some folks like to keep their investments separate from their life insurance — and Guaranteed Universal Life accomplishes that goal.
The premiums with GUL are predictable. As long as the planned level premiums are paid, the death benefit is guaranteed – regardless of interest rates.
“Term to age 100” Explained
We like to think of Guaranteed Universal Life as a term product to age 100. Both GUL and guaranteed level term insurance have a guaranteed death benefit with no “moving parts”. Some carriers refer to their GULs as No-Lapse Universal Life.
GUL products allow the consumer to select the age at which the policy terminates. The longer the guarantee, the more expensive the policy. The guaranteed termination age is generally between age 90 and age 120 or 121.
It’s better to select age 100 to 121 (for most people) since there is a risk of outliving the policy. For someone in excellent health and/or a family history of longevity, a guarantee to age 120 can make the most sense. The premium is not significantly higher than a guarantee to age 100.
Living Benefits / Riders / Optional Benefits with GULs
Some carriers offer “living benefits”. Living benefits typically refers to benefits that a policyholder can access while living, such as an accelerated death benefit for a critical illness or chronic condition. A few carriers offer a Return of Premium benefit that allows a full return of premium at specified periods. If your circumstances change dramatically, this can be a useful benefit.
An accelerated death benefit allows a policyholder to access a portion (sometimes up to half) of the death benefit if they are diagnosed with terminal illness. Terms and provisions can vary among carriers.
Other carriers pay benefits if the insured is diagnosed with a critical illness. Again, these policy provisions vary according to the carrier.
Other riders can include the following:
- Waiver of Premium for disability
- Life insurance coverage for children (limited face amounts)
- Accidental Death Benefit
- Return of Premium
Since living benefits are relatively new features with Guaranteed Universal Life Insurance, it is important to ask about this. Most carriers offer these benefits as riders, but a few carriers offer them as “built-in” policy provisions.
Is Guaranteed Universal Life better than Term Life Insurance?
Selecting the right life insurance plan depends on the person’s unique situation. Sometimes, it makes sense to get more than one policy. So, it’s not always either/or.
Some folks like to ladder their life insurance policies in manner that is similar to the way they ladder bonds. For example, having one 20-year term for $750,000 and GUL for $250,000 could be an excellent strategy for some people. This way, their life insurance doesn’t drop from $750,000 to zero overnight.
Other people like the idea that their beneficiaries will receive the death benefit regardless of their age at death. A Guaranteed Universal Life policy would provide that peace of mind.
We are glad to help you find the right policy and determine whether a Guaranteed Universal Life policy makes sense for you.