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Guaranteed Universal Life


GUL as they are referred to in the industry is a universal life chassis that builds very little cash value. The primary reason for purchasing a GUL is a guaranteed death benefit. For a guaranteed premium, coverage can be guaranteed to a certain age. Some families fund to 95, others 100 and others to age 120. These types of policies provide a guaranteed death benefit regardless of interest rates or market performance. In addition, compared to fixed income securities, they offer a competitive after-tax rate of return. If the amount of premium spent delivers a death benefit at life expectancy, policy performance will be in the 5.5% range. And since death benefits are income tax free, the 5.5% tax-free investment compares to a roughly 8.5% taxable investment.

There is another type of GUL policy available in the market, and one Executive Planning Inc. recommends. This is a GUL with a guaranteed money back provision. The client can “put” the policy back to the carrier in the 20th or 25th year and receive 100% of their premiums refunded. This gives the client an “out” should interest rates increase, or should there not be a need for the coverage anymore. Carriers that sell this product provide for two “ put” dates. One after year 20, and one after year 25. In essence, all it costs is the loss of use of funds, which is still less expensive than 20-year term insurance. And the option is there with the same low guaranteed period to keep the policy after the 20th or 25th year.

Guaranteed no-lapse insurance policies have two primary risk factors that must be monitored over time. An assessment of each of these is addressed below:

– Timely Premium Payments. Scheduled premiums must be paid and applied “on time”; otherwise, either a “catch-up” premium must be paid (which reduces the rate of return) or the coverage guarantee period reduces below the expected guarantee period of “to age 120 or lifetime, if greater”.

– Insurance Carrier Solvency. The death benefit guarantee is backed by the issuing insurance carrier. If the insurer becomes insolvent, the guaranteed coverage period may be reduced or eliminated.