What Is Guaranteed Universal Life Insurance?
What Is Guaranteed Universal Life Insurance?
Guaranteed universal life insurance (GUL) is a type of permanent insurance offering lifelong coverage with level premiums and a guaranteed death benefit. Unlike other universal life insurance policies, guaranteed universal life accumulates minimal, if any, cash value that you can use when you are alive. In exchange, it is more affordable than other permanent life insurance options.
Understanding Guaranteed Universal Life Insurance
Guaranteed universal life insurance is a low-cost permanent life insurance policy that provides a guaranteed death benefit for your beneficiary. The key features of a GUL policy include:
- Affordable premiums: Since a GUL policy focuses on the death benefit rather than growing cash value, premiums are usually cheaper than universal and whole life insurance policies.
- Age limit on premium guarantee: When you apply for a GUL policy, you can choose the policy maturity date, which is typically when your coverage ends. The maturity date is expressed in terms of your age and often ranges from 90 to 121. The longer the guarantee period, the more expensive the premiums will be. If you live past the guarantee period, some policies may allow you to continue coverage, but your premiums could increase significantly at that point. Since the policy maturity date tends to be very late in life, policyholders often don’t reach it. That’s why these policies are described as permanent, lifelong coverage.1
- No-lapse guarantee: The policy is guaranteed not to lapse if you make on-time premium payments in full. Unlike other types of universal insurance, market conditions or inadequate funding (due to flexible premiums) cannot cause it to lapse. It will stay in force until you reach your premium-guarantee age or pass away, whichever comes first.2
- Fixed premium: Your premium is guaranteed to remain the same up until your chosen maturity age.
GUL vs. Guaranteed Issue vs. Guaranteed Insurability Rider
A GUL policy is not the same as guaranteed issue life insurance or a guaranteed insurability rider. Guaranteed issue life insurance guarantees acceptance when you apply for coverage. You cannot be turned down. For GUL, you need approval based on factors like your health and tobacco status to determine eligibility and pricing, though some insurance companies offer no-medical exam options.
A guaranteed insurability rider is an optional feature some providers offer that allows you to purchase more life insurance coverage at predetermined life events or ages without proving insurability or taking a medical exam. You might be able to change a GUL death benefit, but it varies by insurance company and can require underwriting and a medical exam.
Pros of Guaranteed Universal Life Insurance, Explained
- Affordable permanent coverage: Guaranteed universal life is less expensive than other permanent life insurance policies, providing an affordable option for people with lifelong coverage needs.
- Level premiums: Premiums will stay the same right up until your selected maturity age. This makes a GUL policy easier to budget for without the fluctuations you might see with other universal life insurance policies. If you live past the age limit, though, your premiums could increase a lot if you want to stay insured.
- No-lapse guarantee: Unlike non-guaranteed universal life, a GUL policy will not be canceled even if the policy’s cash surrender value does not cover the cost of insurance. As long as you pay your premiums on time, you’ll be covered.
- Customizable: You can choose how long your premium guarantee lasts, and some policies allow you to lower your death benefit if life circumstances change. Riders may also be available, such as a return-of-premium rider, which refunds paid premiums if you cancel the policy after a specified time period.1
Cons of Guaranteed Universal Life Insurance, Explained
- Pricier than term life insurance: Although guaranteed universal life insurance is a cheaper permanent life insurance option, it’s still more expensive than temporary term life insurance.
- Minimal cash value: These policies are affordable because they focus on the death benefit rather than the cash value component that whole and other universal life insurance policies feature. Some GUL policies don’t offer a cash value component, and those that do provide minimal growth potential, so they’re not a good investment vehicle.
- Missed payments could cause lapse quickly: Missing a premium payment could cause the policy to lapse, or cancel, which means you’ll no longer have a death benefit for your beneficiaries. While that’s true of any life insurance policy, it’s particularly important for a GUL. Other permanent policies have more of a cash value reserve that you can use to cover premiums. Since a GUL has little to no cash value, it could lapse more quickly after missed payments.
- Doesn’t offer true guaranteed lifelong coverage: If you end up living past your GUL’s maturity age, the coverage could end or you may need to pay significantly more at that time to extend. This could turn into a problem if you have a long life expectancy, especially if you set the GUL maturity age for 90 or 95. A GUL doesn’t offer guaranteed lifelong coverage at a fixed price like whole life insurance.