Guaranteed Universal Life Insurance
A GUL insurance policy is an affordable, cost efficient way of buying permanent life insurance. This type of life insurance is the sensible middle ground between deficient term life insurance policies and benefit rich whole life insurance policies. Just like in a Whole life insurance policy, the premium payments in a GUL policy are guaranteed to never increase.
Term Life Insurance vs Guaranteed Universal Life Insurance
Most consumers are acutely aware of the ins and outs of a term life insurance policy. For those uninformed, a term life insurance policy provides a predetermined amount of life insurance protection for a certain period of time, often called a “term”. The most widely available “terms” are for 5, 10, 15, 20, 25, and 30 years. For this period of time, the cost of the insurance, called the “premium” can never increase. But what happens when the term is up? When the term expires you are able to continue your insurance coverage but you typically pay higher premiums each year you chose to continue. Eventually, extending a term life insurance policy can be prohibitively expensive, especially for individuals older than 60 years of age. In addition, health issues can even cause an individual to be uninsurable. Consumers typically purchase this type of policy in their earlier years because term life insurance is usually the most affordable and cost- efficient way of getting a large sum of life insurance. Similar to a term policy, each premium payment in a GUL policy is mostly used to pay for the insurance. In this regard, Term Life is similar to auto and homeowner’s insurance because neither provides a savings or “cash value” payout if you cancel.
Term Life vs GUL vs Whole Life
Death Benefit (Life Insurance Coverage) Comparison
Term Life – Provides a fixed death benefit but only for a limited amount of time (usually 5-30 years)
Guaranteed Universal Life – Provides a fixed death benefit for life
Whole Life insurance – Provides a fixed death benefit for life
Cash Value (Investment Growth) Comparison
Term Life – Does not provide any potential for cash value accumulation. All payments are made toward the cost of insurance Guaranteed Universal Life – Provides little to no cash value by design. Almost all payments are made toward the cost of insurance.
A GUL is best described as a permanent term policy. However, unlike a term, the premium payments are fixed and the policy never expires.
Whole Life – provides for substantial cash value accumulation. Whole life is designed in a way that guarantees the cash value will reach the death benefit coverage upon maturity (usually age 100). Whole life is typically great for use as a forced savings vehicle, an emergency fund, or secondary retirement savings vehicle.
Cost Comparison
Term Life insurance – Provides most affordable and cost-efficient way of getting a large sum of life insurance. Premiums are fixed for the duration of the term. However, Term life can become prohibitively expensive to cover the elderly in which case a whole life or GUL policy can be a better fit.
GUL – Premium payments are fixed for life. GUL provides a sensible middle ground between Term Life and Whole Life insurance. Most policies cost 2-4 times more than a comparable term life policy.
Whole Life – Premiums payments are fixed for life. Most Whole life policies cost between 5-10 times more than a comparable term life policy. This is normal because a large portion of each payment is being used to grow the cash value which can be used for any purpose (wedding, down payment funds, college education, emergency fund, etc.)
Common Uses of Guaranteed Universal Life Insurance
1) Due to their lack of cash value, GUL policies are perfect for an Irrevocable Life insurance trust. The proceeds of the policy are typically used to pay estate taxes upon your death. Having cash to pay estate taxes can ensure that your heirs don’t have to sell any of their inheritance to pay the taxes. Since there is no need to have cash before death, a GUL is a perfect fit for an Irrevocable Life Insurance Trust.
2) GUL policies are ideal as a permanent solution for a prolonged (more than 30 year) need for life insurance. If you find yourself in the “sandwich generation” you may want to strongly consider this type of policy. For those uninformed, the sandwich generation are those adults who are currently caring for an elderly parent while supporting an adult child. Traditionally, the need for life insurance ended when your kids were out of the house because they were no longer your dependents. However, with elderly parents living longer and children taking longer to establish careers, a 30-year term may not provide protection long enough. Given that the price difference between a 30-year term and a GUL policy isn’t all that much, it may save you more in the long run to buy a GUL at the onset rather than renewing your term policy at higher rates.
3) You want to guarantee that should you pass away at any age there is enough money to: a) Payoff the remaining mortgage b) Payoff any credit card/auto/personal loans you may have c) Provide a college fund to your children or grandchildren (or great-grandchildren) d) Provide for your own funeral costs e) Supplement your surviving spouse’s income f) Minimize any other financial impact on your family that results from your death