Using Guaranteed Universal Life for Income Protection

guaranteed universal life insurance

When many people think of life insurance, they think only of someone dying and money that is paid to a beneficiary. What they don’t think of are the many beneficial purposes the money serves in the lives of those left behind.

 

Let’s take a look at how Guaranteed Universal Life insurance can provide many benefits, in particular income protection for survivors. Before we do that, let’s take a quick refresher on Guaranteed Universal Life (GUL) and then look at how it can be used effectively for income protection.

Guaranteed Universal Life

 

People usually buy term insurance to last them for a set period of years. For example, if they’ve just taken out a 30-year mortgage, they may quite likely apply for a 30-year term insurance policy to provide mortgage protection if the insured dies before the mortgage is paid off. It does not accumulate any cash value inside of the policy and is usually the least expensive method of purchasing life insurance protection.

 

Whole life insurance, on the other hand, is designed to provide protection for the insured’s entire life. As long as premiums are paid, the coverage stays in force, and the death benefit will eventually be paid. Whole life policies build cash value, which increases over the life of the policy. It is generally the most expensive form of life insurance someone can buy.

 

Guaranteed universal life insurance strikes a middle ground between term insurance and whole life insurance. Its premiums are higher than term insurance rates but less than a comparable whole life policy.  GUL does not accumulate as much cash value as whole life.

 

Unlike term life, which provides protection for a designated period, GUL provides protection to a selected age of the insured. For example, a GUL policy may guarantee coverage to age 90, or even up to age 120.  We are seeing more and more Americans living past age 100 than ever before.   

Not all companies offer guaranteed universal life insurance.  Make sure you are working with the best GUL companies when you are getting quotes.

The Dual Income Family

 

If you’ve ever watched old black and white television shows from the 1950s and 1960s, you may have seen shows centered around families, like Leave It To Beaver or Father Knows Best. In these shows, the husband went off to work each morning, while the wife stayed home to take care of the kids and the housekeeping. It was evident that one income sufficed.

 

That traditional scenario has changed dramatically over the years. In 1960 only 25% of households had dual wage earners. That percentage significantly increased to over 60% in 2000. It is undoubtedly even higher now. The two-paycheck family is here to stay.

 

With two paychecks came more financial obligations. An additional vehicle needed to be purchased for the second working spouse, and the square footage of homes, along with their prices, increased significantly. Tutoring and private schools became the norm for many families with children, along with braces and a plethora of after school activities.

Enter Income Protection

               

Two income households have become the norm for Millennials and Gen X’ers. They want to enjoy the finer things in life, have comfortable housing, and enjoy weekend outings to favorite restaurants and events. Many of them have mortgages and young children.

 

What would happen if one of the wage-earners were to die suddenly? What would the impact be on the survivors? What adjustments would they need to make, and how would they meet all of their financial obligations? It is these questions that guaranteed universal life protection is designed to answer, as it protects those left behind.

 

Strikingly, according to one study, only 10 percent of millennials have enough life insurance to cover all of their financial needs. They no doubt care about their families; however, it is apparent that they need the education to understand the risks they are posing to their survivors. They also need the opportunity to purchase much-needed life insurance.

The Need For Income Protection

 

Though it may not seem like it at the time, life does indeed go on after a spouse passes away. Survivors have the same needs they always had: food, clothing, shelter, and many more areas of their life on which financial attention must be focused.

 

Let’s take a look at some areas where a loss of income would have lasting severe, negative consequences for survivors.

 

The Mortgage

 

The majority of mortgage lenders use the 28 percent rule when determining how much house someone can afford. That is, you should spend no more than 28 percent of your income, before taxes, on a house payment. Many couples push the limits by taking out a mortgage right at the threshold of approval by lenders.

 

Large mortgages mean tremendous amounts of pain left over for survivors if two incomes were required to pay the mortgage. For example, if a mortgage of $250,000 required that a couple had a combined income of $100,000 to qualify, it could mean that both had equal incomes of $50,000 per year (this is a best-case scenario). If one were to die, the survivor would be expected to pay the mortgage each month on half of the income. This is not a realistic possibility.

 

However, a guaranteed universal life insurance policy could solve this problem. If the couple had $250,000 of protection each, the mortgage could be paid in full by the survivor from the proceeds of the policy. Their monthly income could then be used to pay the ordinary expenses of living. A more substantial face amount could be applied for if the monthly need still exceeded the survivors’ income.

 

At what would probably be the most devastating time in the life of the survivors, with a GUL policy in force, they would have the peace of mind knowing that they were not going to be faced with moving because they couldn’t make the mortgage payment. Adequate income protection keeps a family in a home when they need it most.

Education Expenses

 

Just about every parent wants to see their children graduate from college. They want them to have greater professional and financial success than they’ve had, and they see college as the means to have this happen.

 

According to U.S. News, among ranked national universities, the average cost of tuition for a private college for the 2019-2020 school year was $41,426. Add in housing expenses, and the four-year cost easily exceeds $200,000.

 

For parents that want to fund their children’s college education, the income protection that life insurance provides can make this dream a reality. With the average college graduate earning more than $30,000 per year of that which a high school graduate earns (according to the N.Y. Federal Reserve), the difference earned over a lifetime makes paying the monthly premium worth the sacrifice.

Daily Living Expenses

 

According to data from the Bureau of Labor Statistics, the average pre-tax household income in the U.S. was $78,635 in 2018, while in the same year, average household expenditures were $61,664. This equates to Americans spending nearly 80 percent of their income. There is very little wiggle room when it comes to having too much month left at the end of the money.

 

This is a glaring example of the need for dual-income families to have enough life insurance in force to assure survivors that life will maintain some semblance of normalcy after the death of a spouse. Groceries need to be bought, gas put in the car, appointments for haircuts kept, and the list of daily expenses goes on and on. Life insurance keeps the checkbook balanced and the kids in new school clothes. It is an invaluable tool to keep families comfortable.

 

Guaranteed universal life is the perfect policy for income protection. Younger families can afford term insurance, yet struggle early in life with the premium amounts accompanying whole life policies. GUL provides that happy medium of affordable, permanent life insurance that will provide benefits for survivors long after the insured is gone.

 

 

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For more information about using Guaranteed Universal Life Insurance for income protection, please contact us through our website or call 800-712-8519 during normal business hours.

Frequently Asked Questions

What is Guaranteed Universal life insurance?

Guaranteed universal life insurance strikes a middle ground between term insurance and whole life insurance. Its premiums are higher than term insurance rates but less than a comparable whole life policy.  GUL does not accumulate as much cash value as whole life.

How can Guaranteed Universal life insurance provide income protection?

In the case of a dual income family losing one of the income providers, the death benefit from a Guaranteed Universal life insurance policy can be used by the survivors for their expenses including a mortgage payment, higher education, or daily living expenses.

Should I buy Guaranteed Universal life insurance?

Guaranteed universal life is the perfect policy for income protection. Younger families can afford term insurance, yet struggle early in life with the premium amounts accompanying whole life policies. GUL provides that happy medium of affordable, permanent life insurance that will provide benefits for survivors long after the insured is gone. Contact a qualified independent insurance agent to assess your personal needs.