Guaranteed Universal Life Insurance Vs Term Life Insurance
, Which Should I Get?

Written by CFA Insurance

Life insurance is all about providing financial protection either for your loved ones or your business. Generally, life insurance is divided into term life and permanent life insurance. Under permanent life insurance, the two main categories are whole life and universal life insurance.

Further, universal life insurance is subdivided into guaranteed, traditional, indexed, and variable universal life insurance. Guaranteed universal life insurance is a very unique product as compared to the other types of universal life insurance. The major distinction is the cash value component, which is not quite present in GUL. All other types of permanent life policies except GUL have a cash value component that builds up over time. Because of this GUL products tend to be called “permanent term” so let’s discuss the difference between GUL and Term Life Insurance. 

Term Life Insurance

Term life insurance provides coverage for specified durations. During a particular term or period, you are covered with a death benefit. In case you die during that term, your beneficiaries are entitled to a payout as the death benefit. Once the term ends, the coverage is no longer effective, and no benefit is paid.

This kind of policy is pretty easy to understand. It has a simple design that is quite easy to master. With this type of life insurance, you are required to pay for a policy for a specified term or time length. The most popular terms are 10-, 20-, and 30-year terms. There are also other terms, such as 5-, 15-, and 25-year terms.

Term life is the simplest and the cheapest type of life insurance. The policy stays in effect for a specified term. Beneficiaries are paid a face amount of the policy if the insured dies within the coverage term or period. Nothing is paid to the beneficiaries if the policyholder outlives the policy. Unlike in whole life insurance where premiums are low at a young age, they increase rapidly with age of the policyholder.

These policies have a guaranteed death benefit. Unlike whole life insurance products, term life policies do not have any savings component. The purpose of the policy is to offer coverage to people against loss of life. The premiums cover the cost of underwriting the insurance. And as such, term life premiums are lower than those of permanent life insurance.

Insurance companies usually calculate premiums for term life policies considering an applicant’s age, health, and life expectancy. If a policyholder dies within the specified policy term, the insurance company pays the face value of the policy to the designated beneficiaries. But if the policy expires before the death of the insured, there will be no death benefit. Nevertheless, the policyholder may decide to renew a term policy after the expiration of the existing one, but premiums are recalculated factoring in their current age and health status.

Guaranteed Universal Life Insurance

Guaranteed universal life insurance is also called secondary guarantee universal life or no lapse policy. It is worth to note that GUL is a hybrid of life insurance, which assumes the attributes of both permanent and term life insurance. If you are torn between term life and whole life insurance, then a good alternative is the guaranteed universal life insurance (GUL). This one has become extremely popular these days. Its name can make you think it is just another form of permanent insurance, but it is indeed unique and stands out for some reasons. As mentioned earlier, GUL is not designed to build any cash value. It is commonly referred to as term for life and has a guaranteed death benefit and a guaranteed level premium.

As opposed to term life, GUL policy is age specific and a bit flexible. For instance, term policies only cover for shorter periods and the longest they can go is 80 years. But with GUL, you have the freedom to choose the age you want the policy to cover up to. This, therefore, eliminates the need to reapply for life coverage when a term policy comes to an end.

Another important aspect about GUL is that it focuses mainly on the death benefits, but not the cash value component. This means the policy does not allow for the accumulation of cash that can be collected later. If there happens to be any cash buildup, it goes to servicing the level premiums. Also, GUL policies can be customized to meet the needs of an individual policyholder.

Again, the guaranteed universal life insurance policy is much simpler in its design. This means it is easier to understand than other types of permanent life insurance products. It is also much more affordable as compared to regular permanent life insurance policies.

When it comes to buying a guaranteed universal life insurance policy, it is good to tread with caution. The fact is that GUL policies are not created the same. Some of them have strict limitations than others regarding what they offer. As such, you need to talk to an independent life insurance agent to help you select a GUL policy that best meets your specific needs.

Term Life vs. Guaranteed Universal Life

Different types of life insurance policies serve different purposes. For instance, there are those that offer coverage for a specified number of years and ones that provide lifetime coverage. That said, term life insurance is an ideal choice since it offers coverage when you need it and for the period you want. Also, it is a more affordable option as compared to other kinds of policies.

Nevertheless, coverage that lasts a lifetime can be a great choice, especially if you have people to depend on you at old age. Also, permanent life insurance is ideal if you have unsettled debts that will be paid off for a long time. In such a scenario, a guaranteed universal life insurance policy can be an ideal choice. Remember that coverage that lasts a lifetime can be costly. But if you are looking to getting a policy that is guaranteed to last till you die, GUL is just for you.

Outlined below are some of the key similarities and differences between term life and guaranteed universal life insurance you should know:

Key Similarities

These two life insurance products share similar characteristics:

  • They have premium guaranteed level. Premiums remain intact throughout the policy term. This applies to both term life and GUL.
  • The death benefit is guaranteed. Beneficiaries are guaranteed of getting a death benefit. This is pretty good because your loved ones can have total peace of mind.
  • They do not have any cash value component. This is a unique attribute that is found in both term life and GUL. If there happens to be a cash build-up, it is used to keep the levels premiums.
  • They have very simple policy designs. These policies are not complex whatsoever. This means anyone can easily understand their structure and design.

Key Differences

  • Term life has common term periods of 15, 20, and 30 years while in GUL you can choose your guaranteed period, which ranges from 90 to 121 years.
  • The same way a 40-year term policy will be more expensive than a 30-year term policy, a GUL guaranteed to age 90 will be more expensive than one a 40-year term.
  • Even if GUL is a bit more expensive, your beneficiaries have a guaranteed death benefit, which is tax-free. With term life, the payout is paid if you die within the term period.

The Main Difference

The two major differences between term life and GUL are price and time. When it comes to price, GUL is typically more expensive as compared to term life. The underlying reason is that you are receiving coverage for a longer period. That is to say with GUL; the cost increases with the increase in the period of coverage.

The other difference is time. This is the length of time your policy is supposed to offer you coverage. For term life, you can be covered between 1-35 years, depending on the insurance company you choose. This makes term life a good planning tool for many people. For instance, a 30-year term is an ideal option for young people seeking life insurance.  For GUL, you can receive coverage up to ages of 90, 95, 100, 105, 110 and 121. This is just permanent or long-term life insurance guarantees life insurance for a longer period or permanently at significantly lower prices than other permanent life insurance products.

Why GUL is called a Permanent Term Life Insurance

As mentioned earlier, GUL policies are available for ages 90 up to 121 years. It is, therefore, the mandate of the applicant to choose the period or length of time they want their coverage to go up to. For instance, choosing 121 years of age is just like saying you want coverage for the rest of your life.

So, the reason why it is called permanent term life insurance is that policyholders have to select a specific term/period for which they will remain covered. The word ‘permanent’ has been added before term life simply because the coverage is for a lifetime. It is only the lengths of the terms that make GUL different from term life insurance. For term life, the time lengths run from 1 to 30 years while in GUL they stretch from 90 to 121. Another difference is probably the price since GUL is a bit more expensive than term life.

Which One to Go For?

Taking the example of buying a car, people have varied reasons for owning an automobile. They usually look at aspects, such as fuel economy, price, performance, and reliability, among others. Other people pay close attention to the vehicle’s safety. If you opt for a safer and stable car, you will be certain that your loved ones stand a better chance of surviving an accident. As such, you might be willing to pay more for a car that is safe to drive than buying a cheap one that will compromise the lives of your loved ones.

In the same vein, your retirement benefits and investment could be able to keep your loved ones in a stable financial condition even if you live past 90 years. However, things do not always go as planned. For instance, a serious ailment can strike you and completely drain your financial accounts. As such, you may find yourself in a situation where you cannot cater to the financial needs of your family at old age. So, having guaranteed universal life insurance is a good idea because it can act as a safety tool. For people in their 60s or 70s whose term policies have lapsed, purchasing additional coverage can be costly. With GUL, you can prevent such agonizing situations from occurring.

In essence, people have different reasons for purchasing life insurance. For those with temporary needs like mortgage affairs, term life can be ideal for them. But for those with permanent or long-term goals, GUL is indeed their best bet.

Benefits of Permanent Term Life (GUL)

GUL policies are safe and secure because they offer all-round protection to your loved ones. Outlined below are some of the tiptop benefits that GUL policies can offer:

  • Offers policyholders the ability to lock in a guaranteed payout for a specified period of time. The payout is given to the designated beneficiaries as a death benefit. So, no matter what happens, your loved ones will get something at the end of the day.
  • Beneficiaries have access to a guaranteed tax-free death benefit. The payout to your beneficiaries is not only guaranteed but also free from tax. This is an assurance that your loved ones will be better placed financially when you die.
  • Acts as a vehicle to pass along wealth to your children and grandchildren. This is a great way to transfer wealth to your loved ones. If you had loaded their personal bank accounts instead, even before your death comes they would have depleted all.
  • It can act as a charitable trust. Any charity organization can trust someone with a permanent life insurance policy.
  • Offers a policy which is affordable and flexible. Due to its simple design, GUL is regarded as one of the most flexible permanent life insurance policies. Also, it is pocket-friendly as compared to most of the permanent life insurance products available in the market.

What Do I Get?

The policy that is right for you will depend on your life insurance needs.

If you simply need coverage until your kids are out of college then term life insurance is the solution for you. However, if you need coverage for 40 years or more then you will require a more permanent solution like a GUL.  Getting the coverage now will allow you to get it while you are healthy and young so you can lock in a great rate for a long period of time.

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The truth is the best bet is to work with a professional and lucky for you, you’re in the right place! We can do a free needs analysis to let you know what your best options are. We will also shop the rates with all of the companies on the market to get you the best rate, at no extra cost to you!

 

About Jason Hill
About Jason Hill

Jason is the founder of CFAinsure. His years of experience in the business have helped him serve and represent hundreds of clients. Jason ensures his clients are well educated and informed by putting their needs first. Each appointment is tailored to individual needs, via specific materials and educational tools. The real benefit for his clients is the end result: peace of mind.

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