Understanding Guaranteed Universal Life Insurance (2024)

Guaranteed universal life is a type of permanent life insurance policy. Just like traditional universal life or variable universal life insurance, GUL offers lifelong protection with a fixed death benefit and a fixed monthly premium. Here’s the hybrid component: Unlike its permanent life cousins, GUL does not have a cash value component, which makes it similar to a term life insurance policy.

What does that mean? It means you’re paying for customizable, lifelong coverage without the higher premiums that come with other types of cash value-building policies.

GUL is available with both simplified (no medical exam) and full underwriting (medical exam required) from many life insurance companies.

The lack of cash value is key to making this one of the most affordable life insurance policies with permanent coverage.

Benefits of guaranteed universal life:

• Flexible design. Policies can be customized in many ways. Most policies cover to age 90, but can be customized all the way to age 121.
• Lifetime coverage without lifetime pricing. Due to the various options for coverage guarantees and lack of cash value, this allows someone to get the most amount of coverage for their entire life at lower life insurance rates.
• Riders. GUL policy holders can access and utilize the same types of riders available with other life insurance coverage options such as return of premium or long-term care.
• Level premiums. Premiums are fixed as long as they are paid on time, and compared to other permanent policies, they are low-cost.

Below is a quick look at how GUL compares to other types of life insurance policies.

*As a universal life policy, a guaranteed universal life premium can be missed without lapsing the policy; however, it will have a negative impact on the life of the policy by reducing the coverage guarantee or resulting in a large catch-up payment. Guaranteed universal life policies should never be sold with any intention of flexible premiums.

GUL offers lifelong coverage without the added cost to the premium of building cash value.

Here is an example of how the premiums and customization work: Our sample policyholder, Joe, is 40 years old, earns a six-figure income and purchased a $500,000 GUL policy to offset his lack of retirement savings to ensure he can leave his wife with some money if he passes away prematurely. Joe’s policy is guaranteed to provide lifelong coverage until he is 121 years old and he pays $300 per month in premiums.

Below is a breakdown of how his money is used by the insurance company.

• Total premium. $300 per month is the total monthly payment and is determined through the aggregated costs associated with the underwriting process and insurance company expenses.
• Expense charges. A portion of Joe’s premium is spent on expenses associated with the management of Joe’s policy. These include policy administration, underwriting, agent commissions and other miscellaneous internal operational costs. The expense charges are deducted from the premium before the remaining amount is applied to the other aspects of the policy.
• Rider fees (if applicable). Riders are optional benefits that Joe could have added to his policy initially. For example, for an added cost, Joe could have chosen an accidental death rider which would double his $500,000 policy to $1 million if his death was caused by an accident. There are various types of riders available, each with their own specific costs that are added to the premium before the policy is approved.
• Cost of insurance for guaranteed premium. This is the cost for the net amount of risk of insuring Joe’s life for $500,000 and is determined during the underwriting process. This is the part where the insurance company actuaries ensure the company has sufficient funds to cover Joe’s potential death benefit payout while keeping his premium level for the life of the policy.
• Cash value accumulation (not applicable to Joe). This applies to other types of permanent policies. After the expense charges, applicable riders, and insurance costs, the additional leftover premium is used to begin building cash value over time. Cash value is the factor in permanent life insurance that allows for a policy to be lifelong and there is a minimum charge to guarantee the life of the policy and the rest is used to accumulate cash.

Since Joe’s policy doesn’t build cash value, the insurance company simply builds in the required minimum fee for the policy to have a no-lapse guarantee to the selected age. Therefore, he is not charged extra for cash building and can take advantage of the savings from a lower premium payment.

Fast forward: After 41 years of owning the policy, Joe was 81 years old and spent $147,000 in premiums before passing away. His beneficiaries were paid a lump sum, tax-free guaranteed death benefit of $500,000.

How could Joe have customized his policy differently?

Another option Joe had was to customize his policy so that he was finished paying all his premiums when he turned 65 for a total of $147,300 (25 total years of payments) rather than paying monthly premiums for life. This would allow him to pay a little more during his peak income earning years and have no premium and full policy ownership at age 65 when he retired on a fixed income.

GUL policies are flexible in design and the most affordable option for permanent coverage. It’s vitally important to work with a licensed professional to understand the various solutions that GUL has to offer.

There are some key advantages when considering a GUL policy.

Lifelong Coverage and Lower Costs

GUL can be designed to last for an applicant’s entire life. This is similar to whole life and universal life, but at a cheaper cost as discussed above. In fact, costs for low face amount whole life policies used for burial insurance can even be reduced by utilizing GUL.

Permanent Alternative

For those looking for a lifelong policy that will not expire and who don’t want to spend extra money to accumulate cash value, a GUL policy is a perfect fit. These policies are a great blend between term insurance and traditional permanent insurance, and policy calculators are readily available from various insurance companies.

Potentially More Efficient Than Term Insurance

For individuals concerned with their health and potential approval, applying for a permanent insurance policy rather than a term policy can have some advantages. Some companies have programs called “table shaving” that are only available on their permanent products like GUL.

Let’s use Frank as an example. Frank is 40 years old, overweight and pre-diabetic. He applied for a 30-year, $250,000 policy.

• Option A: Frank and was approved at standard Table B, which means his premium is 50% more expensive due to his health. The 30-year term costs $135 per month and will expire when he turns 70 years old.
• Option B: During the underwriting process, Frank’s health status (has potential for improvement) qualifies for their table shaving program. This means the company will “shave off” the Table B surcharge of 50% if he will instead take a GUL policy instead of the original 30-year term he applied for.

If Frank decides to take option B, the GUL policy costs $166 per month and will expire when he turns 121 years old — basically lifelong coverage. For an extra $31 per month and utilizing a permanent product instead of a term product, Frank can guarantee he will never outlive his life insurance.

As with all life insurance, there are some key considerations before making a purchase decision:

• Are your financial goals dependent on accumulating cash value in addition to traditional retirement savings?
• What is your risk tolerance? Are you better off putting your money into a life insurance policy or an alternative investment?
• Are the rates within your budget?

Speaking with a financial advisor about your insurance needs and personal finances may also be helpful in arriving at a decision.

GUL policies can fit well in a variety of financial plans. The affordability and flexible design options make them very attractive to those that may have non-traditional financial risks commonly covered by term insurance.

If you’re looking for a life insurance policy that accumulates cash value, GUL is not for you. An experienced life insurance agent can walk you through the various companies available as well as highlight the pros and cons as they specifically relate to your needs.

Life insurance is confusing for most people. Below is a quick look at the major takeaways from this article to help you find and design a policy that fits your needs.

• If you’re looking for the lifelong benefits of life insurance at the lowest possible cost, a GUL policy is an option you may want to consider. A great example of this would be getting life insurance for future estate tax needs, a need that you can’t afford to expire.
• If you’re looking for a policy where the death benefit will not change for the life of the policy, a GUL may be a good option.
• If you’re looking for cash value and policy loans, consider a traditional whole life or indexed universal life policy rather than a GUL.
• If you’re looking for premium flexibility, a traditional universal life or indexed universal life policy would be a better choice.

Regardless of the type of coverage you choose, you’ll still be faced with underwriting decisions such as taking a medical exam or not, with both impacting the price you pay.

Always connect with a licensed insurance agent to ask questions to determine what the best life insurance is for you.