Guaranteed universal life insurance, or GUL, is sometimes referred to as the Goldilocks policy. It strikes a balance between term and permanent life insurance that can be cost-effective for consumers, says John Keddy, senior principal at Aite-Novarica Group, a financial advisory firm.
But this type of coverage makes up only 1% of individual life insurance sales in the US, according to LIMRA, a life insurance trade group. To compare, term and whole life policies make up 86% of sales. So with such a small market size, is guaranteed universal life the hidden gem of life insurance, or does it fail to deliver the best of both worlds?
Here are five things you should know before buying a guaranteed universal life policy.
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1. Coverage is essentially lifelong
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Like term life, guaranteed universal life lasts for a set period. But instead of choosing a term length, you choose the age the coverage will end, typically between 90 and 121 years old. Because it is fairly rare to live to the upper end of this age range, guaranteed universal life is essentially considered lifelong coverage.
In some cases, you can choose a younger expiration age, such as 70. The younger the age, the cheaper the premiums because you are more likely to outlive the policy.
You may be able to extend the coverage if you reach the expiration age, but the new premiums could be significantly more expensive.
2. Cash value growth is minimal
Cash value accounts are an investment feature of permanent policies like whole life insurance, which funnel part of the premium into an account that grows over time. While guaranteed universal life policies technically have a cash value account, it doesn’t accumulate enough growth to rival permanent coverage.
If you are looking for coverage with significant investment opportunities, you may want to consider cash value life insurance policies that focus on growth.
3. Premiums are cheaper than whole life
Guaranteed universal life insurance is less expensive than permanent coverage such as whole life because it does not prioritize cash value growth. This may appeal to applicants looking for simple, lifelong, low-cost coverage. If you are older and aren’t interested in building up an investment, guaranteed universal life provides a way of getting coverage for the rest of your life, says Ken Toffolo, research council fellow at Aite-Novarica Group.
When compared with regular universal life insurance, guaranteed universal life premiums for older applicants are similar. But the cash value account in a universal life policy is more involved, and handling the ups and downs of an investment may not be something you want to take on.
4. Coverage can be a good fit for seniors
Life insurance rates are generally based on age and health, which means affordable life insurance for seniors can be hard to find. Term life is the cheapest option on the market, but it is often unavailable to applicants in their 80s. And whole life policies can get very expensive later in life.
This is where guaranteed universal life policies can help fill the gap. It tilts toward term rates when term life is no longer available, Toffolo says, and it is less expensive than a whole life policy at an older age. Plus, issue ages for guaranteed universal life policies can reach into the 80s, making coverage available to older applicants.
A $100,000 guaranteed universal life policy for an 85-year-old woman costs $1,134 a month, according to 2022 data from Quotacy, an insurance brokerage. To compare, a whole life policy for the same applicant is $1,420 a month, about 25% higher.
5. Death benefit and premiums are flexible
Guaranteed universal life insurance offers a little bit of flexibility, which is probably what makes it appealing, says Scott Holeman, director of media relations at the Insurance Information Institute, a trade group.
Similar to other types of universal life, guaranteed universal life offers the ability to adjust the coverage amount, policy length or frequency of payments as your needs change.
Some policies also come with a return-of-premium rider. Life insurance riders are features you can add to a policy to customize coverage. A return-of-premium rider refunds all or some of the premiums you have paid if you cancel the policy, typically within a specific window of time.
before you buy
Choosing the right type of life insurance often comes down to your individual needs. Ask yourself why you need coverage. “If you’re young, buy term — you could always switch to something else,” Toffolo says. Term life is typically sufficient for most families.
However, if cash value growth isn’t a priority, and you want a comparatively low-cost coverage solution that is likely to last a lifetime, guaranteed universal life may be worth considering.