Non-Guaranteed vs. Guaranteed Universal Life Insurance: The Basics
When shopping for a life insurance policy, you might notice that universal life insurance branches off into “non-guaranteed” and “guaranteed” policies.
Though grouped together as universal life insurance, it’s important to realize that non-guaranteed and guaranteed coverages are not alike.
If you buy a non-guaranteed policy without knowing what it is or how it works, you are subjecting yourself to potential heartache down the road.
Read on to learn the difference between these two types of polices, and see why we are strong advocates for guaranteed universal life insurance (GUL).
Quick Article Guide
Here’s what we'll cover in this post:
What is Non-Guaranteed Universal Life Insurance?
Non-guaranteed universal life insurance is a type of permanent life insurance, meaning you are buying coverage for life. A non-guaranteed policy carries a death benefit like any other life insurance policy but with an investment component attached to it. Many life insurance agents will try to sell you the latest trend on the market while downplaying the real-life risk involved.
Universal life insurance policies became extremely popular during the 1980s, when interest rates were at an all-time high of 15% or more. While interest rates have recently increased to combat inflation, the vast majority of these policies are underfunded.
When a policy is underfunded, it means that the insured must pay additional money in order to keep the coverage.We’ve heard horror stories of clients seeing their rates jump by as much as 72.4% per year once they reach their 80s, according to InvestmentNews. One example shows an 84-year-old who must pay nearly $30k just to keep his $400k policy for another year.
This is why we are always skeptical of any policy that involves a savings or investment option, given the market risk.
What Does Cash Accumulation Really Mean?
Many people mistake the words “cash value” or “cash accumulation” for dollar signs. Understand that the cash value in your non-guaranteed universal life policy is not a death benefit. If you die before you withdraw the cash value in your policy, your insurance company keeps the money. It is not paid to out to your beneficiary or beneficiaries, and is essentially lost.
For more information about cash accumulation and reviewing your life insurance, please read here.
If you do withdraw the cash value in your policy, the life insurance company considers this a loan and you will be charged a “cash surrender” fee of up to $750. In addition, you will have to pay interest on the money you have withdrawn until the loan is paid back.
If you still have an outstanding loan balance when you die, the amount of the loan is subtracted from the payout that your loved ones will receive. In other words, the extra money you pay into these types of policies is never really your money.
What is Guaranteed Universal Life Insurance?
In a GUL policy, the insured assumes no risk and is locked in for coverage up to a specific age.
Guaranteed universal life insurance is not whole life insurance and does not build a cash value. It is more similar to term life insurance, with your term being defined by age rather than years.
Without the cash value and expensive management fees of non-guaranteed coverage, guaranteed universal life is relatively affordable and one of the most popular choices for estate planning, pension maximization, and guaranteeing a modest inheritance.
If you're looking for a permanent policy that won't break the bank, guaranteed universal life insurance may be the perfect match! Below we've listed some great reasons to consider a GUL policy.
Benefits of Guaranteed Universal Life Insurance
So, why exactly do we recommend guaranteed universal life insurance?
Your cost of insurance won't change
In a non-guaranteed policy, the cost of coverage will often increase every year or two. 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, 110, or even 121.
Your coverage isn’t tied to an investment
In order for a non-guaranteed policy to hold at the same rate you were quoted, the investment has to perform well. Unfortunately, many 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 are also losing money on your investment on top of it.
You aren’t pouring extra money into your policy
When you buy a non-guaranteed policy, you will pay extra to build your cash value. Here’s the zinger, though: when you die, that cash value is lost. It does not go to your family—only the death benefit does.
If you’re looking to invest, the savvier thing to do is to buy a 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.
You will pay less up front
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 coverage each month.
You don’t run the risk of losing coverage
Perhaps most importantly, guaranteed universal life insurance provides peace of mind in knowing your premiums will not skyrocket.
Non-guaranteed coverage has an inherent risk of becoming unaffordable, in which case you might find yourself unable to secure any life insurance.
A Side-by-Side Comparison
The best way to compare any two types of life insurance policies is by putting the two side by side. Here’s a chart to help you understand the key differences between non-guaranteed and guaranteed universal life insurance:
How to Apply for Guaranteed Universal Life Insurance
There’s no cost to apply for guaranteed universal life insurance. You only pay for the coverage itself once you’re approved and have accepted the policy.
Whether you’ve been shopping for life insurance on your own already or don’t know where to start, JRC Insurance Group is your friend in the insurance industry.
As a non-partial, no-fee brokerage, our goal is match our clients with the best life insurance options available by shopping and comparing rates from more than 50 highly-rated insurers. By having access to dozens of companies and their guidelines, we’re able to save our client’s time and money.
Give us a call today, our agents are here to help. Toll free: 855-247-9555, or request a free quote below to instantly compare rates from dozens of providers.
Clifford Pendell
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:
Thank you so much for the clarification of the non-guaranteed vs guaranteed universal life insurance policies. Our father is 73 and has never owned any type of life insurance policy. I've been trying to apply for the highly advertised "guaranteed acceptance" policies, but there is always the fine print that allows the insurance companies to deny him due to health issues. When I finally found one that would accept him I was extremely disappointed to find that the face amount of the policy would only pay out if he were to die in an accident. Considering I was going to be paying half of a mortgage payment in monthly premiums it is outrageous to conceive that the insurance companies believes this to be a service to the public.
Ms Santana, Thank you for your question and visiting JRC's life insurance website. You're correct...there are accidental death life insurance policies and those which pay out for any cause other than suicide the first two years. Accidental death coverage is inexpensive, often purchased by people traveling internationally or young and healthy but worried about accidents...we have many truck driver customers. Usually alzheimers, mental illness, residence in an assisted care facility are the reasons a person can't qualify for a "guaranteed acceptance" type of life insurance. This is more due to state insurance regulations...you must be able to enter into a contract on your own, and can't have a family member or other ward put money on your life without your full understanding. If this is not your dad's case, and he's able to speak with us by phone to answer health questions and authorize you as beneficiary and handle payments for him, we may be able to help. JRC is licensed in 48 sates and with nearly 50 of the top rated life insurance companies in the industry. Call us at (855) 247-9555 and we'll see what we can do. If we can't help him, we'll at least be able to provide peace of mind that you've done your due diligence, and rather than pay insurance premiums, could "self insure" by putting money away in a dedicated account to pay for his final expenses. Best Regards, JRC Insurance Group (8550 247-9555
SO I currently have INDEX UNIVERSAL LIFE known as IUL with National Life insurance that they are also offered living life benefits. I am 24 years old and I am covered for 1.5Million. I have been paying $800USD a month! On the book, it says about $350 is the cost of insurance and $450 is deposited for cash value. My policy was started on 04/12/2016, Now It has Net Death benefit at $1,511,720.23. With Accumulated Value at $11,720.23. But the thing is my policy stated that there has a Surrender Penalty at $21,660.00. So my question is what can I do with this policy? Should I keep it or should I cancel it? If I cancel this policy, will NLG eat up all my cash accumulated value? and are they gonna send me a surrender penalty that I have to pay it back?
Mr. Zhou, Thank you for question and contacting JRC Insurance Group. You are wise in evaluating your options. Some clients call us when they've been into an IUL for 10 or more years or reaching an age where their cash value is rapidly depleting, which often occurs. First step would be to call us when you have a copy of your policy and/or most recent statement from National Life. We'll review it with you and help you determine the present and future cost of options best for your age, health and financial needs and goals, as well as how long it would take you to get ahead of any current/future penalties. We'll email a synopsis and whatever detail is needed. We are fully licensed, and there is no cost for our services. We're located in San Diego, CA, available to help you from 8am-5pm Pacific time. Call us at (855) 247-9555 and an agent licensed for your state will be assist you.
What is the "health class" category on the Instant Quote? I don't know if I should have preferred, preferred plus, etc.
Ms. Hartig, Thank you for contacting JRC Life Insurance and visiting our website. You ask a great question! It's the basis on how life insurance companies determine risk. Each insurance company uses unique "underwriting guidelines" to place prospective customers into risk categories based on their mortality tables...this determines the risk to the insurer of paying a future death claim. Primary factors are our health history, "build" (height/weight) ratio, family history of illnesses such as cancer/stroke/heart disease, and even out occupations/activities. Insurance companies may utilize up to 12 risk categories, with #1 being "Preferred Plus/Preferred Best" or similar. This is often referred to a superman/superwoman category with very low risk in all categories. Only 5% or so of the American population qualify. Most common is "Standard"...meaning average risk compared to the population of all customers. Worst risk while still qualifying to buy insurance is called "Table 8". Table ratings are sub-standard risk. This can be for a variety of reasons such as being diabetic, obese, past cancer history, chronic pain treated with medications, etc. JRC offers a free service of pre-qualifying prospective customers by phone. There's no cost of obligation. We'll take 5-10 minutes to go through a health evaluation to determine your risk category. We can then compare costs for top-rated insurers. They each tend to have specific niches where they offer best pricing. This can not only make it easier for customers to qualify, but ensure they're not overpaying for life insurance. It's somewhat of a commodity in that it's a highly regulated industry by both state and federal government. Companies you haven't heard of may offer your best pricing. They may be as high or more highly rated as those who advertise a lot, but because they're not spending large amounts of money on TV ads, they'll offer more favorable rates. JRC Life Insurance Services can be reached at (855) 247-9555. We look forward to helping you.