GUL Life Insurance Pros and Cons
Many people worry that they will outlive a term life policy and be left without life insurance later in life when they need it most. Guaranteed universal life insurance offers a happy medium between permanent and term life insurance coverage.
In this article we've explained the potential benefits and drawbacks that a guaranteed universal life insurance policy offers to help you determine if this type of coverage is right choice for your unique situation.
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What is Guaranteed Universal Life Insurance?
A GUL policy functions similarly to a term life policy, except rates are fixed to a specified age (90, 95, 100, 105, 110, and even 121) rather than a specified number of years. In a GUL policy, the insured assumes no risk and has guaranteed coverage up to the age of their choosing.
It’s important to understand that guaranteed universal life insurance is not whole life insurance. The only thing it has in common with whole life is that it—for all intents and purposes—provides coverage for your whole life.
GUL does not build cash accumulation or “cash value,” nor does it carry the expensive management fees of whole life insurance. We’ll discuss both of these elements further through the rest of this article.
Pros of Guaranteed Universal Life
Here at JRC Insurance Group, we are a strong proponent of GUL for several reasons, including:
In a non-guaranteed universal life insurance policy, the cost of coverage can increase every year, also known as an adjustable cost of insurance. This can wreak havoc on an older adult’s finances at a time in life when they do not have the capability to increase their income and afford a more expensive policy. With a guaranteed policy, even as you age, your premium is fixed. You can guarantee your premium to age 90, 95, 100, and beyond.
In order for a non-guaranteed universal life policy to remain at the same rate you were quoted, the investment (the “cash accumulation”) has to perform well.
Unfortunately, many non-guaranteed policies don’t perform as expected, especially with the way interest rates have plummeted over the past few decades.
When this happens, not only does the cost of your policy increase because you’re getting older, you’ll also be dipping into the cash value you’ve built up to cover the increasing cost of your insurance coverage. Forbes recently published an article further explaining this risk in their article, “Disaster Looms for Universal Life Policyholders.”
Guaranteed universal life insurance, on the other hand, does not involve any investment component. You are only paying for the coverage you need and your rates cannot change as you get older.
When you buy a non-guaranteed universal life insurance policy, you will pay extra money each year to build your cash value.
To accommodate the cash value component, non-guaranteed universal life insurance has a much higher up-front cost compared to GUL — possibly even 3 to 4 times the cost of your coverageeach month. The worst part is that cash value in life insurance is never really yours. It does not go to your family after you die—only the death benefit does.
Some people like the idea of being able to draw from their policy’s “cash value” later in life, but it’s important to understand how this can put your coverage at risk.
Taking a loan from your non-guaranteed universal life insurance policy will decrease your policy’s death benefit until the amount of the loan is paid back with interest. If you run into tough times and are unable to repay your loan in a timely manner, you can even lose your coverage.
If you’re looking to invest, the savvier thing to do is to buy GUL, and invest any money you save elsewhere, separately from your life insurance. That way, the invested money is there for your family in addition to your death benefit, and you’ll be able to access your money without jeopardizing your life insurance policy.
The name says it all - guaranteed universal life insurance provides peace of mind in knowing your premiums will not skyrocket, and you will have coverage through your lifetime.
Cons of Guaranteed Universal Life
While there can be a few perceived drawbacks to GUL, our perspective is that even the cons are more like pros. Nevertheless, here are the potential gripes some might have with GUL:
No Cash Value
If you are absolutely sold on investing with life insurance, then you might feel uninspired by GUL’s simplicity. But remember, any non-guaranteed policy comes with a market risk that your investment could flop. Despite these risks, some agents will try to sell you the latest “hot product,” downplaying the risk factor.
Take, for instance, indexed universal life insurance (IUL). Agents will tell you that you can borrow from it, use it to send your kids to college, etc. But if you dig further, you’ll find that IUL isn’t the wonder product they make it out to be.
Get the complete scoop on IUL here.
Higher Cost Than Term Life
Term life insurance is typically the most affordable type of life insurance, because in the insurer’s eyes, there is less of a chance that they will have to pay a death benefit. While the cost for GUL might run higher than term life, remember that you are securing coverage to a very late age, even up to age 121!
These policies must charge more because they are designed to pay out. However, if you’re buying coverage for the first time in your 60s or 70s, a GUL can actually be the most cost-effective option.
See real-life costs and comparisons in our article on buying life insurance over 70.
Unlike smaller whole life policies, GUL usually requires a medical exam. This might seem like a burden, but assuming you are in relatively good health, the medical exam will help you to land better rates on life insurance.
Insurers use medical exams as a way to assess risk, and when you show them that you have nothing to hide with your health, they are willing to offer more favorable rates.
For more insight on why you should always take a medical exam for life insurance, click here.
Putting the Case for GUL into Context
Non-guaranteed universal life insurance policies have an adjustable cost of insurance which increases as the policy holder gets older. To offset this rising cost of insurance, the “cash value” in your life insurance policy needs to accumulate a minimum amount of interest each year.
If the cash value in your policy does not perform well, your policy will eventually become underfunded, and you’ll need to pay additional money into your policy to keep your coverage active.
Here’s a real-life example of why we’re so adamant about guaranteed universal life insurance over its non-guaranteed counterpart:
We recently worked with a 66-year-old male in excellent health, named Frank. Frank was shopping for a $500,000 dollar policy to leave money behind for his daughters, and he needed the coverage to last for his entire life to ensure that they received the money he intended to leave behind for them. For his non-guaranteed universal life insurance policy, he was quoted at a planned annual rate of $12,000.
After reading through his policy, Frank learned that in order for his non-guaranteed policy to last his entire life, he would need to earn more than 6% on the money he invested. With current interest rates so low, Frank felt like this was too large of a risk to accept.After speaking with Frank, we learned that the males in his family typically live until their late 80s. With Frank’s current health standing, he plans to live until at least the age of 90. We decided to compare Frank’s options for a guaranteed universal life policy until age 95. With this policy, there are no surprises. Frank’s rate of $9,350 per year will not increase, even if the market flops.
Saving a few hundred dollars a month will help Frank enjoy his retirement a little bit more, and he’ll have the peace of mind that matters most.
Need More Information on Guaranteed Universal Life Insurance?
Unless you are extremely familiar with life insurance, chances are, you still have some questions about GUL or life insurance in general. JRC is your friend in the insurance industry, here to provide the information and assistance you need in order to secure an affordable and reliable life insurance policy.
We do not sell other types of insurance such as auto or home insurance; life insurance is our sole passion and profession. We also have no reason to pressure or “upsell” you. We are 100% independent agents working to find the right solutions for our clients, with absolutely no fees or obligations.
Call us today at 855-247-9555 to speak with one of our experts, or request a free quote online below to instantly compare rates from dozens of top-rated life insurance companies.
Managing Partner and Co-founder
Cliff is a licensed life insurance agent and one of the owners of JRC Insurance Group. He has helped thousands of families of businesses with their life insurance needs since 2012 and specializes with applicants who are less than perfect health. In his spare time he enjoys spending time with family, traveling, and the great outdoors.
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Questions From Our Visitors
Some of the questions we received from our website visitors:
I need to purchase GUL of $1M. I live in California. Male DOB May 15 1975. Best health rating. please provide quotes.
Jeff, Thank you for your question and visiting JRC's website. GUL policies offer guaranteed rates to age 90, 95, 100 or 121. The higher the age, the higher the cost. Age 121, which is the type generally bought for estate tax burdens, are currently pricing at a little under $5800 per year at your current age and a "Preferred Best" risk class. If you're comfortable with a policy/price guarantee to a younger age, the cost will be lower. Call us at (855) 247-955 if you'd like to review these options. Will you need the full $1 million at your time of death if you live into your 90's? Some clients they tell us they need $1 million now to replace their income for their family and pay off debts, but, for instance, $250,000 would be sufficient in their 90's since they'd have savings/investments and few financial responsibilities. If that's the case, you could purchase a $250k GUL and the balance on a much less costly term policy. Many of our clients carry multiple policies to retain flexibility. Call JRC if you'd like help comparing various plans and options....it's what we do, along with providing accurate medical and financial pre-qualification underwriting so you're applying with the insurer providing your best personal fit. JRC Life Insurance Group (855) 247-9555