Permanent life insurance has been devised to last your entire life (lifetime guarantee) and to provide your beneficiary a payout once you die.
Unlike term life insurance, guaranteed universal life insurance, or GUL, will stay in force forever or as long as you pay your premium. Your premium is guaranteed not to increase and your death benefit will not decrease.
Typically, GUL is purchased in order to pay for your final expenses, or pass along money to your spouse and kids or grandkids, and even assist in helping to pay estate taxes. These policies also have important riders such as living benefit riders that pay you while you are living if you develop a critical illness, chronic illness or terminal illness.
There are several types of life insurance policies that provide permanent coverage. In addition to guaranteed universal life insurance, we also have available whole life insurance, variable universal life insurance, indexed universal life insurance, and current assumption universal life insurance. In this article, we will discuss the basics surrounding guaranteed universal life (GUL).
What Is Guaranteed Universal Life Insurance?
This policy is similar to indexed universal life insurance except that the interest rate or market risk is eliminated. Your life insurance premiums will remain the same no matter how the underlying market index performs since your policy’s interest rates are included with the premiums at the beginning of the policy. Additionally, guaranteed universal life offers a no-lapse guarantee. This simply means that as long as you remain current with your premiums, you’ll continue to have coverage. You can think of GUL as a lifetime term policy. There is little or no cash value growth and premiums are lower and remain level for the life of the policy.
When considering a quality guaranteed UL policy, we look to these carriers first:
- North American or Midland National
- Protective Life
- Lincoln National
- Banner Life or William Penn
- Penn Mutual
- Pacific Life
However, this also means that your policy will not have a cash value component. While there’s nothing to backup the death benefit should you stop paying your premiums, as long as you keep your premiums current, your death benefit will not decrease. This makes guaranteed universal life insurance resemble term life insurance. With term life, you are covered for a specified term period, such as 20 or 30 years. You’ll pay your premiums for the specified term and receive coverage for just that time. Once the term ends, you’re no longer covered. Most likely, once the term ends, you’re nearing retirement which typically requires less coverage.
Guaranteed universal life insurance policies are great for individuals that will need coverage later in life, or at retirement. This makes this type of insurance quite similar to term life except that the term lasts until your life ends. Just like term, the younger you are when you buy insurance the cheaper the premium.
A 40 year old male could expect to pay around $125 per month for $250,000 in coverage for life versus around $30 per month for a 30 year term policy.
Common Uses For a Guaranteed Universal Life Insurance Policy
A few of the most common reasons individuals choose to purchase guaranteed universal life insurance include to provide a death benefit for your beneficiary in order to pay for your final expenses, to protect your estate from taxation via an irrevocable life insurance trust (ILIT), or to leave an inheritance for your loved ones.
Pros and Cons of Guaranteed Universal Life Insurance
Oftentimes, this type of policy is referred to as a “no-lapse” or “secondary guarantee universal life” policy within the insurance industry.
While term life guarantees a death benefit for a specified amount of time and a guaranteed level premium, many times the policyholder might survive the guaranteed level period. When this occurs, a decision then has to be made on whether to secure a newer policy. At this point, the policyholder is older and their health condition may have deteriorated.
Only about 2% of term life insurance pay out a death benefit because the insured either outlives the term period or they convert to a permanent life insurance policy
Whole life insurance also provides a guaranteed death benefit, a guaranteed level premium, and a guaranteed cash value up to the age of 100. Unfortunately, whole life insurance has the highest premiums due to the guaranteed cash value. If cash value is not important to you and all you are looking for is a life insurance policy that will be in force for life, consider a guaranteed universal life insurance policy.
Now, let’s take a look at the pros and cons of this form of insurance:
- Premiums are level for your lifetime
- Guaranteed level premium payments can be structured as you see fit
- Dial in the guarantee period until age 90, 95, 100, 105, 115, or 121 (shorter the guarantee, the cheaper the rate)
- Interest rate unpredictability doesn’t affect premiums
- Less expensive than other forms of permanent life insurance
- Comparisons with other insurance providers is simple due to the few components with the policy
- No cash value unlike other permanent life insurance products
- Premiums are higher than term life insurance
- You must be consistent and on time with your premium payments in order to maintain the guaranteed level premium.
- May include fees or “surrender” charges if the policy cancels before the expiration date
- While some plans provide investment options, they may also include management fees, making them more expensive.
Applying for Guaranteed Universal Life Insurance
The application process for a guaranteed universal life insurance policy is the same as that for a term life insurance policy. Before applying, it’s best to consult an independent insurance agency with access to multiple life insurance carriers to compare product prices side-by-side.
Once you’ve compared rates from the leading insurance carriers and decided on your best option, you’ll complete your application and schedule a minimal medical exam. Once you complete your in-home medical screening, you’ll want to follow-up with the selected insurance company until your policy has been approved.
Typically, the approval process will take about six to eight weeks unless you choose a company that has a no medical exam life insurance policy. It is during this time that your medical results will be processed and sent to the carrier’s underwriter. Upon evaluation of your lab results, the underwriter will request additional medical records from your physician, and hopefully approve your guaranteed universal life insurance application. The life insurance company’s underwriter will then designate a risk class, which will determine the cost of your guaranteed universal life insurance policy.
After your policy is approved, you’ll be given the chance to review the policy and either accept or decline the terms. You will also be given the opportunity to adjust your coverage as you see fit. Keep in mind that no payments will be due until you have the chance to review and accept the policy. Most providers allow you up to 30 days to make a final decision.
Furthermore, many insurance providers allow a 14 to 30-day “free look” period once your coverage begins. It’s during this time that you’ll have the ability to cancel your coverage and receive a full refund. Once the free look period has ended, you are still able to cancel your policy for any given reason without further obligations or costs.
Final Say about Guaranteed Universal Life Insurance
The greatest advantage to purchasing a guaranteed universal life insurance policy is that it’s less complicated in design and easier to understand when compared to other permanent life insurance products. The guaranteed universal life insurance policy is also more affordable than whole life insurance or indexed universal life insurance. Talk with us at Ogletree Financial today about whether this policy will best suit you and your family’s needs.
We can run a spreadsheet with all of the top companies that offer guaranteed universal life insurance.