Guaranteed Universal Life is one of the lesser discussed insurance options. The basics are simple. Universal Life is a form of permanent insurance. In its most basic form, it is a Universal Life policy with a rider built in that guarantees the policy will not lapse if payments are made before a certain age of the insured.
These policies are often structured by companies to offer a policy that is not designed to build cash value. They are customized to provide term style coverage until a specific age instead of a specified number of years. This provides coverage beyond what is available from traditional term policies.
The details of the policies and supplemental benefits can vary from company to company. I’ve seen policies that last until ages 85 through 121.
Why Get Extended Term Coverage?
If you’re healthy the prices of these policies can be significantly less than traditional permanent policies meant to build cash value. If you’re just looking for simple coverage this can be a great option! These policies can also have great supplemental benefits.
Accelerated Death (living) Benefits
These policies can have great additional benefits like accelerated death benefits (also known as living benefits). These are benefits that can pay out in the event of terminal, chronic, and critical illness. They vary from company to company. Certain companies offer them for no additional cost, but most companies will have some sort of living benefits even if you do have to pay a small premium for them.
Return of Premium Riders
These policies can include (sometimes for no additional cost) return of premium riders. These riders allow you (at certain times in the policy) the ability to cash out the policy and receive your premium back. Most often you can get some or all of your premium back between 15 and 25 years (depending on the offered rider).
Is the policy worth purchasing coverage to age 95 just to cash it out in 20 years? Not necessarily. You can purchase return of premium riders on term policies. By the time you add in the return of premium rider the cost is often pretty similar. What makes these policies preferential to regular term policies with return of premium is the option to not exercise the return of premium rider. If over those 20 years, your cost of coverage rises, or you end up needing coverage past the return of premium period, you have another option. You can continue with the coverage to the planned age.
Having the additional living benefit and return of premium riders gives you several exit options for the policy. Here are 3 key options:
- If you die, the coverage will pay as planned
- If you become terminally, critically, or terminally ill you can exercise some or all of your coverage before you pass.
- If you no longer need the coverage when the return of premium dates come up you can cash the policy out to get your premium back.
These 3 exit options make this policy the preferred policy for business coverage. Businesses rarely have answers for key parties becoming terminally, critically, or chronically ill. They rarely end up with policies with return of premium features that can help business owners buy out of stock holdings around retirement age. This option can offer increased benefit for both situations.
When should I Get a Policy That Builds Cash Value?
Cash value is good for certain circumstances, but not all. Here are some examples:
- If you’re wanting to use the cash value in your account (to borrow against for example).
- If you’re unhealthy and the cost of whole life is less because the cost of coverage is too much for a non-cash value policy.
- Whole Life policies for children that are paid up early.
In most cases guaranteed universal life policies make sense for the average person looking for basic coverage that lasts longer than a traditional term life policy.
Convert Your Way In
If you have a term policy currently that is about to expire, you should look into the conversion terms. Guaranteed universal life policies often meet the requirement of permanent coverage to convert the term policy into. If you have time to convert your policy this can often be a great way to turn back the underwriting clock. If you’re less healthy, a little heavier, or less insurable than you were when you took the policy out, you can often use the underwriting category you qualified for.
Prepare your existing policy information before you call your insurance advisor. You should always review existing policies with your advisor before looking into new ones. I regularly save clients thousands of dollars (sometimes even finding coverage for clients that might not otherwise have it) by converting existing life insurance policies. Know your conversion rights and know them well.
Just because whole life and traditional universal life policies are expensive, doesn’t mean you’re out of options. No matter what you think your choices are, don’t count out guaranteed universal life. This is often the missing link people don’t even know about or consider when looking for coverage. Reach out to me today to see what your options are.