Is Guaranteed Universal Life Insurance (GUL) Worth it?

Thang Truong
Thang Truong
Updated on:

People who are looking for an insurance policy that lasts their entire lives and don’t care about cash value accumulation often purchase guaranteed universal life insurance or GUL. GUL is sometimes sold as being a hybrid of whole life insurance and term life insurance. It features lifetime protection of whole life insurance at a much cheaper price point. It doesn’t accumulate cash value the way whole life insurance does, but some customers don’t care about that. Is guaranteed life insurance worth it?

>>MORE: Understanding How Guaranteed Universal Life Insurance Works

Guaranteed Universal Life Insurance Provides Guaranteed and Permanent Death Benefits

If you want to leave a nice, tax-free lump sum to your heirs, GUL may be perfect for you. Technically, you would choose a length of time for the policy to remain in force, up until age 90, 95, 100, or 121. The longer the policy lasts, the more expensive the premiums, but then you don’t have to worry about outliving the policy. 

Unlike term life insurance, guaranteed universal life insurance lasts your entire life. To be able to give the death benefit to your heirs with a term policy, you would need to die sometime during the term. Say you purchase a 30-year term policy at the age of 30. At the age of 60, you’re still alive and well, so your term insurance policy ends, the death benefit disappears and that’s the end of that. You could buy a new term policy, but now you’re 30 years older and such a policy will be more expensive. 

Now, let’s say this same person, instead of the term insurance policy, bought a guaranteed universal life insurance (or GUL) policy and selected to pay premiums for 30 years only, when he was 30. At the age of 60, he’s still healthy, but he doesn’t need to worry about his life insurance policy expiring because he purchased a GUL policy that lasts until he’s 100. When he finally does pass away at the age of 97, his sons and daughters get to share a nice tax-free death benefit. if this person opted for a whole life insurance policy for the same guaranteed death benefit, he will have to pay more than double the cost.

>>MORE: Compare Guaranteed Universal Life Insurance With Whole Life Insurance

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Cash Value Considerations

You may have noticed that cash value was not mentioned in the above scenarios. That’s because a GUL isn’t really designed to build a lot of cash value. You could overfund the policy to build some cash value, but it’s not really what is was designed to do. Whole life insurance builds up a good amount of cash value, but then whole life insurance is extremely expensive. For example, a $300,000 policy for a healthy 40 year-old male is about $7,000 a year. A similar GUL policy would cost somewhere around $1,500 a year. You won’t build much cash value, but then again, you won’t have to come up with an extra $5,500 a year. When your shopping around for GUL, consider our top picks

If you are interested in both permanent death benefit coverage and a cash value account that you can access to when you need it, you should consider an indexed universal life insurance policy or IUL. IUL provides a permanent death benefit coverage and a cash value account whose growth is pegged against the performance of a popular market index, usually S&P 500. This means that the cash value account in an IUL policy will grow faster than that in whole life policy. Even better, an indexed universal life insurance usually costs much less than similar whole life policy. Thanks for these advantages, IUL is popular for retirement savings purposes. If you are interested in learning more about this, this is our article explaining why IUL is a good option for retirement savings.

>>MORE: Compare Whole Life Insurance With Indexed Universal Life Insurance

Guaranteed Universal Life Insurance Offers Paid-Up and Guaranteed Feature

An advantage of GUL is that you can elect to pay the premiums for however long you want, say 30 years. After this 30 year period, even when you stop paying premiums, you will still have your insurance policy in force. It has been paid for and your heirs will get the death benefit no matter when you die. 

Who is Guaranteed Life Insurance For?

GUL is perfect for those who want to leave a tax-free benefit to their beneficiaries and don’t care about accumulating cash value. If you are the parent or grandparent of a special-needs child, GUL is a perfect investment. If you have a business, you might want a GUL policy to provide a tax benefit to your heirs. If you want to protect your estate from taxes, GUL could be a good option. 

Anyone with children who are expected to be independent and can pay off their own mortgage may want term life insurance instead, as it’s a lot less expensive. It’s up to you how much you are willing to pay to provide your heirs with tax-free money when you pass on.

Thang Truong

Thang Truong covers small business insurance and small business success at BravoPolicy. He is a licensed P&C insurance agent. Previously, he held product leadership positions at, Capital One, NerdWallet, and Mulberry Technology. He holds a MBA degree from UC Berkeley - Haas School of Business.

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