What are the Pros and Cons of Guaranteed Universal Life Insurance? Today, we are are going to expound more on the basics surrounding Universal Life Insurance (GUL).
Guaranteed universal life insurance (GUL) is meant to last your entire life and to offer your beneficiaries a significant payout once you join your ancestors. Unlike term life, GUL will remain in force as long as you continue to pay the requisite premiums. With GUL, there is a guarantee that your premiums will not increase at any given point and the death benefit will not decrease.
GUL policies are for people who are ready and willing to commit to ongoing premium payments. Before you purchase this kind of policy, you need to have the financial capability to pay the premiums. So, anyone with an unstable career might not be the right candidate for GUL.
Typically, guaranteed universal life insurance is purchased to cater for your final expenses. It is also meant to provide your spouse and kids with finance after you die. Additionally, the policy can assist in the payment of estate taxes. They also have living benefit riders, which offer compensation while you are alive in case you develop with critical or terminal illnesses.
In this piece, we are going to expound more on the basics surrounding guaranteed universal life insurance (GUL).
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What is Guaranteed Universal Life Insurance?
Guaranteed universal life insurance is a kind of permanent life insurance policy whose premiums remain the same regardless of the performance of the market index. The policy’s interest rates are included with the premiums right from the beginning. This kind of policy offers a no-lapse guarantee. This, thus, means that your coverage holds as long as you continue to pay your premiums. Also, there is little cash value growth, and the premiums remain level throughout the entire life of the policy. So, your policy will not have any cash value that you can pull out. And for that matter, there is nothing to back up the death benefit if you stop paying the premiums. If you keep on paying your premiums, your death benefit will not decrease at all.
Features of Guaranteed Universal Life Insurance
There are unique features associated with GUL that anyone interested in this policy should know. Such features are highlighted below:
- Level Premiums. Premiums for GUL are guaranteed to remain the same throughout the policy term. This means they will not increase at any given time, but you have to continue making timely premium payments or you cause your policy to lapse.
- Limited or No Cash Value. GUL is not meant to accumulate cash value like the traditional universal or whole life insurance. Although there are a few instances of cash value accumulation with GUL, they are quite uncommon.
- Coverage to Specified Age. GUL offers coverage to a specified age. For instance, you may choose a GUL policy for different ages, such as 90, 95, 100, 110, and 121. As the age bracket goes up, GUL premiums also increase.
Pros and Cons of Guaranteed Universal Life Insurance
Even though a term life insurance policy will offer a guaranteed level premium and a guaranteed death benefit, this is only for a limited period. Most people end up outliving their term life policies, which eventually takes them back to the drawing board to look for a new policy when their health conditions have worsened. To avoid such frustrations associated with the term life policies, you should consider purchasing a guaranteed universal life insurance policy. Explored below are the tiptop pros and cons of guaranteed universal life insurance:
- It has a very simple policy design. Unlike other permanent life insurance products, GUL is simple and easy to understand.
- Premiums are level for your lifetime. You are going to pay the same premium throughout the time of coverage.
- The unpredictability of interest rate does not affect your premiums. Sudden market changes or fluctuations do not affect premiums.
- Less-expensive as compared to other forms of permanent life insurance. Guaranteed Universal Life Insurance is cheaper than traditional universal and whole life insurance.
- There is no market risk. This means the policy will still perform as usual even if the interest rates get affected.
- Flexibility when it comes to selecting the age guarantee. This may range from 90 to 121 years of age. The longer the guarantee age, the higher the premiums.
- Little or no cash accumulation. This is quite different from other universal life insurance products. Any cash buildup is used to maintain the leveled premiums but not a significant amount that can be cashed out.
- Premiums are higher as compared to term life insurance.
- To maintain a guaranteed level premium, you must be consistent and be able to make on-time payments.
- In case you cancel your policy before its expiry date, fees or surrender charges might be imposed.
- Inflexible. With certain life insurance policies, you can adjust your premium and death benefit. But GUL is not one of these flexible life insurance policies.
How Does Guaranteed Universal Life Insurance Work?
Nowadays, GUL is becoming a very reliable option for life insurance shoppers. The reason is that it offers you that great opportunity to get lifetime coverage at a greatly reduced cost as compared to other permanent life insurance products. Other forms, such as whole life and universal life insurance products are expensive than GUL.
GUL is similar to term life in the sense that the premiums are low and lasts a lifetime. It costs more than term life policy, but not as much as the traditional life insurance policy. GUL policies provide lifetime coverage as long as you choose the maximum coverage length.
To people seeking lifetime coverage, GUL is the best bet. But before you consider buying the GUL policy, it is good first to understand how it works. GUL is indeed a very simple product for anyone to learn about. It operates just like a term life policy providing guaranteed premiums and guaranteed death benefit. What makes GUL different from term life is that you can customize the coverage periods to suit your personal needs. In short, you can structure it to last various ages, such as 90, 95, 100, 105 and 121.
Again, the premiums are guaranteed and will never change as long as they are paid on time. Unlike other permanent life insurance products, GUL policies are not meant for cash value accumulation. The only cash build-up in GUL policies is used to maintain the level premiums and is not a significant amount that you can pull out cash from.
Why People Opt for Guaranteed Universal Life Insurance
There are certain reasons why GUL is becoming more popular:
- Simplicity-GUL is a straight-forward life insurance product you can ever get. Remember some of the permanent life insurance products are very complex. Examples of products with a lot of complexities include whole life, variable, universal life, and indexed universal life. With GUL, you only need to pay your premiums, and you will be covered for the age you applied for.
- Customizable. You can customize your GUL policy to the specific age you want. For instance, if you select age 121, there is a guarantee you have lifetime coverage.
- Affordability. GUL is quite affordable as compared to other permanent life insurance policies. Those extras contained in permanent life insurance are what lead to an increase in the premiums of the traditional universal and whole life insurance policies.
- No Market Risk. With regular universal policies, the final payout can be affected by the unpredictability of the market. But with GUL, it does not matter how interest rates or market do.
- Level Premium Payments. As a policyholder, you know exactly what your monthly premiums are. When signing your policy, you have to choose the age to which it will run. Typically, most companies provide GUL coverage for ages 90, 95, 100, 105, 110, and 121. You will pay the same amount of premium until you die or decide to cancel your policy. But with regular permanent policies, the coverage cost may increase over time.
How to Apply for Guaranteed Universal Life Insurance
The mode of application is the same as that of term life insurance. Before filling out the application form, you need to liaise with an independent life insurance agent. You need to look for an agency with access to multiple life insurance carriers to help compare prices of these products.
Is Guaranteed Universal Life Insurance Worth It?
If you compare GUL rates with term life rates, it is evident that GUL is a bit expensive. But remember it is common to live beyond 85 years today. This has been necessitated by the advancement in healthcare and diet, which have improved people’s lives. If, for instance, you outlive your term policy and want to purchase a new policy at 85, you will have limited choices. So, GUL is worth the cost if at all your main goal is to have life insurance for the rest of your life. But if you need protection for short term, then term life insurance is a better option.