Among the several different types of permanent life insurance, the one that is considered closest to Term Insurance is a policy known as Guaranteed Universal Life Insurance or GUL. The GUL, although a universal life insurance product, was developed for longevity rather than cash accumulation and as such, the premiums and death benefit are not meant to be flexible. GUL is kind of a “set it and forget it” insurance product. In this article we’ll discuss the “whys and why nots” of the Guaranteed Universal Life policy and determine when is the best circumstance to use it.

 

Guaranteed Universal Life Insurance vs Term Insurance

 

When we consider the GUL policy versus Term insurance, let’s first look at the similarities in these two types of insurance products:

  • Both Term and GUL have guaranteed level premiums. This simply means that both policies will have the same premium payment throughout the life of the policy except that term is cheaper because it is not permanent life insurance and most people outlive their policies.
  • Both Term and GUL have a guaranteed death benefit if the insured dies while the policy is in force.
  • Neither Term nor GUL was designed to accumulate cash value. Both policies were designed with the death benefit being front and center.
  • Both Term and GUL are simple designs; they both have minimal moving parts.

Now let’s look at the primary differences between a GUL policy and Term policy:

  • The term policy is designed to last for a period of time such as 10, 15, 20, or 30 years depending on the insurance company you are looking at. The GUL is designed to last to an age rather than a time period. The normal age range for the GUL is somewhere between 90 and 121 years.
  • Similar to the term policy costing more for a 30-year term than a 10-year term, a GUL policy costs more if you need it to last until age 121 than if you were wanting age 90.
  • With the GUL policy, your beneficiary will receive a death benefit when you die, with a Term policy, your beneficiary will receive a death benefit if you die within the policy period (the term).
 Now let’s look at the price difference between a 30-year term policy and a GUL policy. As an example, let’s consider a 30-year old male in great health who is a non-smoker:     Term versus Guaranteed Universal Life After reviewing the rates listed above, the simple question is why would a 30-year old buy a GUL policy when Term insurance is so much cheaper? The answer is pretty simple. When the 30-year old turns 61, his term insurance policy expires and unless he renews it or converts it, he has outlived his insurance coverage. With the GUL policy, he remains covered up to age 100 (very rare for a male to live to 100).

 

About how Much will My Renewal Be?

 

Good question. First, if your term insurance company offers a renewal, it will typically be for one year and then will go up every year after that. But for the sake of this illustration let’s say you are still very healthy and you purchase a new 20-year term policy at age 61 and then compare your rates with the GUL policy that has remained in force:   Guaranteed Universal Life versus term When reviewing this chart there are two things that stick out and one of them is more obvious than the other:

  1. The term rates for the now 61-year-old male are much higher than the GUL rates (obviously).
  2. If the now 61-year old male is alive at age 82, he is no longer insured under the term coverage but he is insured until age 100 (at the same rates) under the GUL policy.

 

The Whys and the Why Nots

 

Now that you have an idea of the cost of Guaranteed Universal Life versus Term Life Insurance, why would someone purchase one over the other? With life insurance, your purchase decision is always based on YOUR needs and YOUR needs when you are 30-years old are much different than your needs when you are 60-years old. For example:

  • When you are 30 you will likely have started a family, have a mortgage and a couple of car payments and you want to put money away for your kid’s college fund and your retirement. Typically, these needs will call for at least a million dollars in insurance coverage. Can you afford a $1 million GUL policy? For many young adults it may be doubtful.
  • You’ll find that your term insurance is inexpensive when you’re younger and in perfect health, but what happens if your term policy expires and you have developed some health issues, will you be able to afford another term policy at age 61? That may be doubtful as well.

So then, knowing that your cost of Term insurance could be unaffordable when you are 61-years old it may make more sense to you to go ahead and bite the bullet now and get a policy in place that will last a lifetime instead of taking a chance on outliving your term insurance and then not being able to afford a permanent policy when you really need it. Your decision depends on your financial circumstances and your actual insurance needs at the time of your decision.  

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