The Difference Between Universal Life And Guaranteed Universal Life

In this section, we will be discussing the difference between Universal Life vs Guaranteed Universal Life which is a great alternative to Whole Life.

Traditional Universal Life:

• This policy may offer coverage for your entire life.
• Offers flexible premiums
• Builds cash value that may be available for loans or withdrawals.
• Some clients will borrow or withdraw cash value funds as a supplemental retirement income.
• If the premium is not paid and there is no cash value to cover the cost of the insurance, the policy will be canceled.

We do not usually recommend a traditional Universal Life Insurance policy.

If you’re looking for straight life insurance coverage for your entire life, a Guaranteed Universal Life insurance policy is the better choice.

Guaranteed Universal Life:

• This policy may offer coverage for your entire life.
• Offers flexible premiums but must be paid on time or you run the risk of cancellation.
• There is little to no cash value for loans or withdrawals.
• There is an added feature called No Lapse which guarantees the policy will not be canceled even if the cash value is zero as long as payments are made.
• Less expensive than Traditional Universal Life.

The Difference Between Universal Life and Whole Life

While Universal Life offers lifetime protection and in some ways is similar to Whole Life, there are also many differences. Let’s compare Universal Life vs Whole Life.

Universal Life Insurance vs Whole Life

Two of the biggest differences are: Premium Flexibility and Guaranteed Lifetime Coverage

With Universal Life, if you miss or skip a payment, the amount of the insurance is taken from your cash value. 

This standard life insurance policy may be able to provide coverage up to age 100, but there is no guarantee. 

Most of the policy’s performance is due to how much interest the cash value earns over the existence of the policy and whether you have borrowed or withdrawn funds from the policy over your lifetime.

With Whole Life, if you miss or skip a payment, the cost is borrowed from your cash value and is set up as a loan. 

If you pay your premiums, you are guaranteed to have coverage throughout your life as long as you do not borrow or withdraw funds from the policy.

What Whole Life Insurance Offers:

• May provide a lifetime coverage
• Cash value that you might be able to withdraw from or take as a loan.
• Clients may borrow or withdraw cash value as supplemental retirement income.
• If premiums are not paid, the policy will cancel if there is no cash value to pay the cost.

What Guaranteed Universal Life Insurance Offers:

• There may be lifetime coverage
• Inflexible premiums – normally premiums must be made on time or your policy could be canceled.
• Very little to no cash value is available for withdrawals or loans.
• Their “No-Lapse” option is an addition to the policy that guarantees the policy will not cancel if the cash value is zero but the policy must still be paid.
• Is usually less expensive than Whole Life.

With the standard Universal Life policy, if your cash value drops too low, your policy can be canceled and you will lose all your money. 

Choose Guaranteed Universal because it provides lifetime guaranteed premiums which mean as long as you pay your premiums, your policy cannot be canceled. 

Guaranteed Universal Life works like Term Life except it exists for your entire life.

The Difference Between Universal Life vs Term:

The biggest difference between these two policies, Term Life only lasts as long as the duration of your term. 

In other words, your coverage will provide protection for only 10, 20, or 30 years– depending on the term you select.  

Universal is a permanent policy that will give you coverage throughout your entire life. 

You can apply the same estimated amount to your premium as with term but instead of having it available for only 10, 20, or 30 years, you pay a standard price until you reach 100.

Term Life does not provide cash value so if you cancel the policy, you will not have anything returned to you.

The 3 Main Components Of Universal Life:

Death Benefits:

When deciding how you want your death benefits paid to your beneficiary, you are given two main options:

The Type A Death Benefit or Level Death Benefit.  You can choose the level death benefit you want and start off as a given amount which stays “level” for the entire life of the policy, regardless of the cash value.

The Type B Death Benefit is another option that combines a specific death benefit along with a cash value accumulation feature which will continually build over the life of the policy.

Credited Interest Plan For Cash Accumulation:

A share of your premium is assigned by the insurance provider for the credited interest plan of your choosing. 

Equity-indexed universal life will allow you to be active in the gains via the major stock index with no risk to the principal loss. 

This is often a very attractive option for a retirement plan for some shoppers.

You are guaranteed a set rate of return regardless of how well the market performs. 

Should the market perform better than the minimum interest amount, you will receive a good portion of the gains which possibly will be capped at a certain percentage.

Flexible Premiums:

Flexibility of paying your life insurance premiums is one of the biggest differences between whole life and universal life. 

Universal premiums can be paid as the insurer wishes as long as there is sufficient cash value to pay the cost of the insurance. 

Unfortunately, you cannot change the whole life premium to fit your financial needs.

What is Guaranteed Universal Life?

What exactly is the “Guarantee” with a GUL? How does Guaranteed Universal Life work?

With GUL, the guarantee refers to as long as you or your cash value pays the minimum premium, the death benefit will be guaranteed. 

Our advice, do not rely on the market to go up or that your provider will pay you a given rate.

Universal life has two categories, guaranteed values and assumed values.  It is highly recommended you go with guaranteed values.

Who is the best Universal Life Insurance Company?

It would great if there was one company that was the best for every life insurance shopper. Unfortunately, there are too many variables that can make a big difference in the life insurance company you apply with.

With that said, these are the Top 5 Guaranteed Universal Life Insurance Companies for coverage to Age 121:

• Mutual of Omaha
• AIG
• Protective
• Banner
• Sagicor

To learn more, read our review on the Best Guaranteed Universal Life Insurance Companies