If you’re looking for permanent life insurance but something cheaper than whole life insurance, consider guaranteed no-lapse universal life insurance. It’s the perfect fit between whole and term life insurance, and it’s a lot more affordable for most people.
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Here’s what you must know.
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What is Guaranteed No Lapse Universal Life Insurance?
A guaranteed no-lapse universal life insurance policy offers permanent (lifetime) coverage but for premiums lower than whole life insurance. While the premiums are higher than term life insurance because it covers you for life, they aren’t as high as most other permanent life insurance policies.
It’s a good policy for those who need lifetime coverage for things like a mortgage, final expenses, estate planning, owning a business, or someone who has a special needs child who depends on them financially for life.
How Does it Work?
When you buy a guaranteed no lapse universal life insurance policy, you get fixed premiums for life. This is an excellent feature because most policies have increasing premiums as you age, such as term life insurance. With no lapse universal life insurance, the premiums never change.
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The coverage amount also remains the same for life. You choose the age you want the policy guaranteed until ages 90 – 121. If you die before the age you chose for the policy, your beneficiaries receive the death benefit payout you choose.
As soon as you make your first payment, the policy begins and will never change. This includes as you age, if you become ill, or if anything else changes – your premiums and coverage are locked in for life.
When you die, your loved ones receive the death benefit. Also, if you decide you no longer need the policy because you’ve lived to an age where you have everything covered, you can cancel the policy. You may get a return of premiums paid (it varies by the insurance company).
How do you Qualify?
Qualifying for no lapse universal life insurance is similar to term life insurance. Because the insurance company guarantees your coverage for life, you must undergo a medical exam and prove you’re a good risk.
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Like term life insurance, insurance companies have premium tables based on your health and lifestyle habits. For example, if you smoke, you’re in a higher premium class than a non-smoker. Your categories also depend on your overall health. If you have any risk factors, such as high blood pressure or being overweight, it may put you into a higher premium category.
What’s the Cost?
While insurance premiums vary wildly depending on your qualifying factors, amount of coverage, and even where you live, here are some sample rates to give you an idea:
- Healthy 30-year-old $54/month
- Healthy 40-year-old $65/month
- Healthy 50-year-old $95/month
Pros and Cons
Like any insurance policy, there are pros and cons to no lapse guaranteed universal life insurance.
- The premiums are lower than most permanent life insurance policies
- You don’t have to renew or re-qualify as you age; the policy is in place for life
- The policy never lapses as long as you make your payments
- The policy won’t have a cash value
- If you stop making payments, you’ll lose your death benefit
What is the Difference Between Universal Life and Guaranteed Universal Life?
Universal life and guaranteed universal life have some similarities, but the one large difference is the cash value.
Universal life insurance is dependent on market rates. Your universal life policy will have a cash value that earns interest based on the related market index. The interest does a few things:
- Grows your cash value
- Decreases your death benefit premiums
- Covers the administrative costs for your plan
Universal life premiums vary based on interest rates. When rates are good, your premiums decrease because the interest covers the costs. But when rates are low, your premiums increase to cover the full cost of the insurance and your account’s cash value.
Universal life insurance rates can become unaffordable depending on what the market does.
But, with universal life insurance, the cash value covers your death benefit premiums. If you stop paying your premiums and have cash value, you still have a death benefit. It will be decreased by the cash value you use, but you will still leave your loved ones with a benefit.
There isn’t a cash value to back you up with guaranteed universal life insurance, so you won’t have insurance if you don’t make your premium payments.
What is a Return of Premium Feature on Guaranteed Universal Life?
Many policies offer a rider called return of premium. This means an extra cost; you have two windows of opportunity to cancel your policy. You’ll receive the greater of its net surrender value or the premiums you paid thus far.
Each insurance company has different requirements regarding how much you’d get back, but at least you know you’d have an out if you no longer need the policy.
A guaranteed universal life is a great option if you’re looking for an insurance policy that doesn’t have market risk but offers lifetime coverage and predictable premiums. The younger you are when you secure the policy, the less you’ll pay for it, and if you pay the premiums on time, you won’t ever have to worry about your policy lapsing.
It can be a great option for those who know they need lifetime coverage and don’t want the higher premiums whole life insurance has or those who don’t need the cash value whole life insurance accumulates.