Permanent Life Insurance with Guaranteed Rates

The 3 Most Common Forms of Permanent Life Insurance

In the life insurance industry there are a variety of different permanent life insurance policies available. The three most commonly-purchased permanent insurance policies are: whole life insurance, universal life insurance, and guaranteed universal life insurance.

We've briefly explained each of these policies below:

Whole Life Insurance

Whole life insurance is usually advertised through the mail or on TV by celebrities like Alex Trebek. These policies usually offer up to $50,000 of coverage until the age of 100 or later, and no medical exam is required for an approval.

The downside to whole life insurance is that it is expensive, especially for those in good health, and the death benefit is limited to $50,000. Most whole life policies offer level rates until the age of 100, but be sure to read the fine print, some well-known insurers will increase your rates as you get older.

Universal Life Insurance

Universal life insurance offers permanent life insurance coverage with the opportunity to build a cash value. While these policies seem to offer the best of both worlds, it is important to understand the risk involved with purchasing this type of coverage.

While some life insurance agents may try to lure you with the promise of a huge return on your investment value, traditional universal life insurance policies are not guaranteed. If the market performs poorly you will lose your investment and possibly your life insurance coverage.

Most universal life insurance policies also have an adjustable cost of insurance or COI which allows the insurance company to increase your rates as you get older. To avoid risky investing and gambling with your family's life insurance protection, we recommend purchasing guaranteed universal life insurance instead.

Guaranteed Universal Life Insurance

Guaranteed universal life insurance, or GUL insurance, is the least-expensive permanent life insurance product available. It offers the permanence of whole life, without requiring an investment, making it risk-free if you pay your premiums on time.

Just like term insurance, your policy's rates are guaranteed not to increase as you get older, regardless of any changes to the market, your health, or  age. With a guaranteed universal life insurance policy, you can secure coverage until the age of 90, 95, 100, 105, 110, or 121, depending on your life expectancy.

The Truth About Cash Accumulation

Most people decide on universal life insurance because they like the idea of building a cash value while they protect their family. While the idea of setting aside some money for the future is always a good idea, there are a few common misconceptions about cash accumulation life insurance that we need to clear up.

First and foremost, it's very important to understand that the cash value in your non-guaranteed universal life policy is not a death benefit. The money you have accumulated over the years will not paid out to your beneficiary when you die, it belongs to your insurance company.

If you withdraw the cash value from your life insurance policy before you die, your policy's death benefit will be reduced by the amount of the loan. Your insurance provider will also charge a “cash surrender” fee of up to $750 dollars, and interest, until the loan has been 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.

The Best Permanent Life Insurance Coverage Available

At JRC, we strongly recommend guaranteed universal life insurance (GUL) for anyone who is seeking a permanent life insurance policy.

With a GUL, you won't have to worry about the market crashing, or your premiums increasing when you are retired. Unlike non-guaranteed universal life insurance, a universal life insurance policy with guaranteed premiums will allow you to lock in your policy's rates for the rest of your life.

Guaranteed universal life insurance coverage works just like a term life insurance policy, but instead of offering level rates for a specific number of years (usually 10, 15, 20, 25, 30), a guaranteed universal life insurance policy will expire at a specific age, usually age 95 or later.

With GUL insurance, the longer your policy's rates are guaranteed for, the more expensive your premiums will be. While you might be tempted to buy a policy that expires at an earlier age save money, it's not worth the risk of outliving your insurance, so make sure you consider your lifetime expectancy when you apply.

Guaranteed universal life insurance is relatively inexpensive when compared to other permanent life insurance products with guaranteed rates. In fact, in some  situations, a GUL policy might be less expensive than a comparable term policy with the same death benefit.

Avoid Surprises with Guaranteed Universal Life Insurance

Everyday we talk to potential clients who are on the verge of losing their non-guaranteed universal life insurance. In most of these situations, the client purchased their policy in the 1980's (when interest rates when four times higher than they are today) and now the policy is at risk of being underfunded.

Underfunding occurs when a universal life insurance policy has used up all of its cash value before the policyholder passes away. When this happens the policyholder must pay a higher premium to keep their life insurance policy active, buy a new policy, or let their existing policy cancel and go without coverage.

Unfortunately, when a non-guaranteed universal life insurance policy runs out of money, most people cannot afford the increased rates to keep their policy active, or they are too old to qualify for a new insurance policy. Often, the end result of this tragedy is a family without life insurance, and thousands of wasted dollars.

Guaranteed Over Non-Guaranteed: A Real-Life Example

We recently worked with a 66-year-old male in named Frank who contacted us to purchase a $500,000 policy to leave an inheritance behind for his daughters. Instead of buying a term policy, Frank needed to buy a permanent policy with guaranteed rates to make sure the coverage would last for the rest of his life.

Prior to calling us, Frank had spoken with a local insurance agent he met at his Rotary club and received a quote for non-guaranteed universal life insurance. He liked the idea of building a small cash value as he got older, but Frank worried that the policy could be too expensive for him on a fixed income.

Frank was quoted at a planned annual rate of $12,000 dollars. However, for his policy to last his entire life, he would need to earn at least 5% interest on his investment. If the market did not perform well in the coming years, the cost of this policy would dramatically increase at some point in the future.

After reviewing his health, we found a policy for $9,350 per year or about $800 a month. With this policy, there are no surprises. Frank’s rate will not increase, even if the market flops. The dollar amount may not seem like a huge difference, but what happens if Frank lives until age the age of 90 or later?

The illustration below illustrates the amount of money that Frank would need to pay into a non-guaranteed policy over the next 24 years versus a guaranteed universal life insurance policy with level rates until age 95.

By the age of 90, Frank will have paid almost $60,000 more for the same amount of life insurance. He cannot withdraw his cash value without reducing his policy's death benefit, so his only option would be to use the cash value to finance his life insurance policy's future premiums.

Please note that this example also assumes Frank’s non-guaranteed policy performs as planned. According to the Wall Street Journal, however, this usually isn't the case. The vast majority of these non-guaranteed policies become underfunded due to fluctuations in the market or decreasing interest rates.

In addition, with a non-guaranteed universal life insurance policy your rates are not guaranteed. The life insurance company can raise your rates at any time and deplete your cash value. If Frank’s policy becomes underfunded, he would need to pay more than his planned premium of $12,000 to keep his policy active.

Why take the risk? Even if his investment value grows as hoped for, Frank will be shelling out almost $60,000 more than he needs to over the next two decades—money that he would much rather spend on his grandchildren.

“Buy Term and Invest the Difference”

Term life insurance is another option with guaranteed rates. While term life does not provide coverage for your entire life, many people utilize it for income replacement or to cover a major debt that they would not want to leave behind to their loved ones, such as a mortgage.

Term life and GUL are somewhat similar in that they don’t involve cash accumulation. The main difference is that GUL provides coverage up to a specific age, while term life provides coverage for a set number of years.

The benefits of term life insurance include:

• Affordable coverage
• Flexible options
• A fixed rate for a set period of time
• No startup costs
• No surrender charge
• No hidden fees
• The freedom to cancel or change your policy at any time

If you’re looking to invest, the safest and smartest strategy is to, “Buy term and invest the difference.” We’d also extend that mantra to include guaranteed universal life insurance.

When you buy term life insurance or guaranteed universal life insurance, you can take the money that you would have been paying for whole life insurance or non-guaranteed universal life insurance policy and invest it into stocks, bonds, or any other investment vehicle.

This allows you more financial freedom when you are still alive and more opportunities to bolster your financial leave-behind. While the cash accumulation in a life insurance policy would default to your insurance company, not your beneficiary.

How to Find the Best Guaranteed Rates

Life insurance is complex, but JRC is here to make it easy for you. We will shop dozens of carriers on your behalf and find the coverage you need at a rate won't fluctuate. If for some reason you decide you still want to buy non-guaranteed life insurance, we will thoroughly explain how your policy works so you know what to look out for.

There’s no cost for you to apply for life insurance and our comparative shopping services are free. Give us a call today, toll-free at 855-247-9555, or request a free guaranteed universal life insurance quote below to compare rates from dozens of providers in less than a minute.