How Does Guaranteed Universal Life Insurance Work?
Guaranteed universal life (GUL) insurance has been generating quite a bit off buzz in recent years since it offers lifetime coverage that is more affordable than whole life or traditional universal life products. To many, this might seem like the best of both worlds – affordable premiums and lifetime coverage. But before you consider a GUL policy it is important to understand exactly how it works. In this post we will explain how GUL insurance works as well as its benefits and drawbacks.
How Does Guaranteed Universal Life Insurance Work?
Guaranteed universal life insurance is actually a very simple product to understand. It generally operates like a term policy offering guaranteed premiums and death benefit. What separates GUL from term life insurance is that you can customize coverage periods to last well beyond traditional term life periods. In other words, you can structure it to last your entire life in most cases. Here are some important features of GUL Insurance.
- Premiums are guaranteed to never increase as long they are paid on time.
- You can structure the coverage so it lasts to various ages such as 90, 95, 100, 105 or even 121. The longer your coverage lasts, the higher your premiums will be.
- Unlike other permanent coverage products such as whole life or traditional universal life, GUL policies are not structured for cash value accumulation. GUL premiums are generally priced to cover the cost of insurance without any excess for cash value investment. It should be noted that some GUL policies offer return of premiums after a certain period of time and even cash value accumulation in some cases.
Benefits of Guaranteed Universal Life Insurance
Coverage is Affordable – Since the policy is structured to minimize cash build up, premiums cost much less than whole life and traditional universal life products that are structured to build cash value over time.
You Can Customize Length of Coverage – As mentioned previously, the length of GUL coverage is customizable. It can be designed to last to up to ages 90, 95, 100, 105, 110 or even up to age 121, essentially covering you for your entire life.
GUL is a Simple Product to Understand – GUL insurance doesn’t really have any moving parts. With products such as variable universal life and indexed universal life, there are investment components to deal with, potential fluctuations in the cost of insurance as well as other factors that could impact premiums and death benefits. GUL insurance is simple in the fact that as long as you pay your premiums in a timely manner, your premiums and coverage amounts are guaranteed.
Premiums are Guaranteed to Never Increase – Once your policy is in force, your premiums and death benefit will remain the same for the life of your policy. This offers predictability not available with many other traditional universal life products.
Drawbacks of Guaranteed Universal Life Insurance
No Flexibility for Missed Premium Payments – GUL insurance is very rigid in its design from the standpoint of timely premium payments. In order to keep all of the guarantees in place, you MUST pay your premiums on time. If you miss a premium payment on a GUL policy, you run the risk of losing your guaranteed rates or you will have to pay a substantial catch up premium.
No Cash Value Accumulation – Guaranteed universal life insurance is not a cash accumulation vehicle like traditional universal life and whole life products. Although some GUL policies might accumulate a small amount of cash value during the life of the policy, borrowing any of it could reduce the guaranteed death benefit period or eliminate it altogether. Some GUL products offer liquidity riders or return of premium after a certain period of time, but most GUL products do not.
Your Guarantees and Coverage Could Expire – We’ve already mentioned that you can customize coverage periods that last to various ages. But what if you buy a GUL with guaranteed coverage to age 95 and you are still alive at age 95? In this case, your guaranteed coverage will either expire or you will have the option to continue coverage by paying catch up premiums. In most cases, the option of paying catch up premiums will be too expensive to continue coverage. Buying coverage that is guaranteed to age 90, 95 or even 100 for that matter might not be a long enough duration if you are in good health. To give you the best chance of not outliving your coverage, consider GUL products that guarantee coverage to age 120.
How Much Does a Guaranteed Universal Life Insurance Cost?
Here are some examples of rates for GUL coverage from some leading providers. The rates are for 50 year old male and female nonsmoker applicants who qualified for ‘Preferred’ health class. The premiums and death benefits are guaranteed to age 121.
| Male | GUL to Age 121 | Female | GUL to Age 121 |
|---|---|---|---|
| $100,000 | $1,035.39 | $100,000 | $916.39 |
| $250,000 | $2,347.81 | $250,000 | $2,004.95 |
| $500,000 | $4,568.39 | $500,000 | $3,854.75 |
Adding Riders to Guaranteed Universal Life
Like other life insurance products, you can add valuable riders to GUL coverage. Some policies offer return of premium riders that allow you to get back a portion of your premiums after a certain period of time. This can be a beneficial feature if your needs change over time and you no longer require life insurance coverage. You can also add riders that pay expenses for long term care and chronic illness to certain policies as well. The more common riders such as accidental death benefit and children’s term coverage are also available for most GUL policies.
Is Guaranteed Universal Life Insurance Worth It?
The landscape for GUL products has changed over the years. With the continued low interest rate environment, many companies simply stopped offering GUL products or raised rates for new applicants. There are, however, a few companies that we think stand out among the rest in terms of GUL cost and features. GUL insurance is a great option for those who are more interested in guaranteed death benefit protection and guaranteed premiums rather than cash value accumulation. The premiums for GUL coverage are much more affordable than traditional universal life products and whole life. As long as you understand the potential risks associated with GUL coverage, it could be an excellent option for your situation. If you have any questions about GUL coverage, please feel free to call us at 888-687-9444 or email us at info@archstoneagency.com
About Us
Archstone Insurance Services, LLC is an independent agency that shops over 40 of the top life insurance carriers to provide huge savings on life insurance coverage for our clients. We are happy to answer any questions you might have about any of the insurance products we offer, your planning needs or your existing coverage. Feel free to call us directly at (888) 687-9444 or email us at info@archstoneagency.com.
