Guaranteed Universal Life Insurance: What it is and How it Works

Life insurance is a vital part of financial planning for many people. It provides financial protection to loved ones in the event of an unexpected death. One type of life insurance that has gained popularity in recent years is guaranteed universal life insurance. This type of policy offers both death benefits and a savings component, making it an appealing option for many individuals. In this article, we will discuss what guaranteed universal life insurance is, how it works, and answer some frequently asked questions about this type of policy.

What is Guaranteed Universal Life Insurance?

Guaranteed universal life insurance (GUL) is a type of permanent life insurance. Unlike term life insurance, which provides coverage for a set period of time, GUL is designed to offer lifetime coverage. This means that as long as the policy premiums are paid, the policy will remain in force until the insured person passes away.

One of the primary benefits of GUL is that it offers a guaranteed death benefit. This means that the policy will pay out a set amount of money to the insured person’s beneficiaries upon their death, regardless of when that occurs.

In addition to the death benefit, GUL policies also offer a savings component. This is known as the policy’s cash value. As premiums are paid, a portion of the premium is allocated to the cash value of the policy. This money is invested by the insurance company and grows tax-deferred over time. The cash value can be accessed by the policyholder through a policy loan or withdrawal.

How Does Guaranteed Universal Life Insurance Work?

When a person purchases a GUL policy, they will be required to pay premiums for the policy’s lifetime. These premiums are determined based on the age, health, and lifestyle of the insured person at the time the policy is purchased. The younger and healthier the individual is, the lower their premiums will be.

One of the key features of a GUL policy is the ability to choose the length of the guarantee period. The guarantee period is the number of years that the policy’s death benefit is guaranteed to remain in force. GUL policies typically offer guarantee periods ranging from 10 to 40 years, although some companies may offer longer periods. The longer the guarantee period, the higher the premiums will be.

Another feature of GUL policies is the ability to adjust the death benefit. This can be done by requesting a change to the policy, which may require additional underwriting. The ability to adjust the death benefit makes GUL policies flexible, allowing individuals to change their coverage as their needs change over time.

Table 1: Sample Guaranteed Universal Life Insurance Premiums

Frequently Asked Questions

Q: How does GUL differ from other types of permanent life insurance?

A: The primary difference between GUL and other types of permanent life insurance is the guarantee of the death benefit. With other types of permanent life insurance, such as whole life or variable life, the death benefit may be variable based on the performance of the policy’s investments. GUL offers a set, guaranteed death benefit regardless of market conditions or investment performance.

Q: Is GUL more expensive than other types of insurance?

A: GUL can be more expensive than term life insurance, as it offers lifetime coverage and a savings component. However, it may be less expensive than other types of permanent life insurance depending on the policyholder’s age, health, and the length of the guarantee period.

Q: Can I borrow against the cash value of my GUL policy?

A: Yes, policyholders can access the cash value of their GUL policy through a policy loan or withdrawal. However, any unpaid loans or withdrawals will reduce the policy’s death benefit.

Q: Can I change the death benefit of my GUL policy?

A: Yes, policyholders can request a change to the death benefit of their GUL policy. This may require additional underwriting and may result in changes to the policy’s premiums.

Q: Is GUL right for me?

A: The best type of life insurance for an individual depends on their unique circumstances and financial goals. GUL may be a good option for those who want a set, guaranteed death benefit and are looking for a savings component in their life insurance policy. It is important to consult with a financial professional to determine the type and amount of life insurance that is right for you.

Conclusion

Guaranteed universal life insurance offers a combination of lifetime coverage and a savings component, making it appealing to many individuals as part of their financial planning. Understanding the features and benefits of GUL can help individuals make an informed decision about whether this type of policy is right for them. With a guaranteed death benefit and the ability to adjust coverage over time, GUL can offer flexibility and financial protection for a lifetime.