You want to protect your family should you die, and you have a lot of options, but the two most confused are guaranteed universal life and term life insurance.
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One is a permanent life insurance option, and the other has a specific term. But the similarities don’t end there. Understanding the difference between GUL and term life insurance is the key to choosing the right policy for you and your family.
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What is Term Life Insurance?
Term life insurance is the perfect ‘first step’ insurance for most people. It covers you for a specified term and is often used for specific scenarios, such as until your mortgage is paid off or until your kids graduate college.
Term life insurance doesn’t have a cash value and has a specific expiration date; it doesn’t last for your entire life.
How Does it Work?
Term life insurance is available in terms of 10, 20, or 30 years and once it expires, the policy ends. It doesn’t have a cash value as it only focuses on the death benefit for your loved ones. Most companies offer riders you can add to the policy for things like accidental death or accelerated death benefits in the case of a chronic or terminal illness.
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Term life policies have the lowest premiums because they are only good for the specified term. You must pass a medical exam to get coverage, and the premiums increase as you age and/or request higher coverage amounts.
Who Should Use It?
Term life insurance is best for young adults or even seniors who want to cover a specific event. If you have debts you want to take care of with the policy, you can take out a policy for the duration of the debt.
It’s also suitable for young adults with young families who need to leave behind income for their family who relies on them.
What is Guaranteed Universal Life Insurance?
Think of guaranteed universal life insurance as a cross between permanent life insurance and term life insurance. You get the best of both worlds, which is great for some people.
Like term life insurance, GUL focuses on the death benefit, it doesn’t have a cash value like most permanent life insurance policies, but it lasts for your lifetime, unlike term life insurance.
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How Does it Work?
Term life insurance, GUL is age specific. You choose what age you want coverage until. The longer you want coverage, the higher the premium, but you have peace of mind that you have coverage.
GUL doesn’t have a cash value, and there isn’t an investment proponent to the policy. This makes it easier to understand than whole or universal life insurance but more flexible than term life insurance.
Who Should use It?
Guaranteed life insurance has its time and place. GUL can be a good option if you’re older and have people who depend on you. You know you’ll have coverage until well past when you would likely pass away, so you know your loved ones are covered.
It’s also great for those who need coverage that lasts longer than term life insurance but can’t afford typical permanent life insurance, such as whole life or universal life. You get permanent coverage should you need it, but you also have the option to decrease the coverage should you be unable to afford it or just don’t need as much coverage as you age.
Finally, guaranteed universal life is good for seniors who no longer have term life insurance and aren’t eligible but who need coverage past the age of 80 years old.
Is Guaranteed Universal Life Cheaper than Term Life Insurance?
If premiums are the deciding factor for choosing between GUL and term life insurance, here are some sample rates to consider.
GUL premiums are higher than term life insurance in most cases because they are ‘for life’ or at least until a very advanced age.
For example, a 30-year-old male pays an average of $100 a month for $250,000 GUL coverage, and a female pays around $85 a month.
The same 30-year-old might pay $30-$40 a month depending on gender (men pay more) for $500,000 in term life insurance.
As you age, your premiums increase too. If you waited until age 45 to buy GUL insurance, males pay an average of $137 a month and females $120 a month for $250,000 coverage.
For term life insurance, you might pay $78 – $85 a month for $500,000 in term life insurance.
If cost is the number one factor, term life insurance is the way to go, but make sure you look at the big picture and understand that term life insurance expires and GUL doesn’t (up to the age you chose).
Guaranteed universal life is a good ‘backup’ policy should your original plans for financial security not work. If you are involved in an accident or must drain your savings and retirement accounts for other reasons, you may worry about what you aren’t leaving behind for your loved ones.
You may also worry that your loved ones won’t be able to afford your final expenses. GUL can be a great way to make up for it and a great ‘secondary’ plan after your term life insurance expires.