Universal Life vs guaranteed UL what works best depends on age

Universal Life, UL, has many different product designations.  One of the most basic distinctions is whether it is a UL or a guaranteed UL.

Guaranteed Universal Life  (Guaranteed UL)
With guaranteed UL there is a lapse protection guarantee: as long as you pay your premium on time, coverage is guaranteed.  Lifetime guaranteed UL is guaranteed to age 121.  Great coverage: inexpensive, straightforward, easy to understand.  Put premium payments on bank draft and forget about it.  Is there a catch?  No.  Well, perhaps in a few ways: guaranteed UL’s lack flexibility on the adjusting the premium amount, the lapse protection is lost if the premium is not paid on time, and guaranteed UL’s do not build much cash value.

Universal Life (UL)
UL’s are called flexible adjustable life insurance for a reason. Premiums are flexible.  There is a target premium.  The real target is to make the life insurance coverage last for the rest of the policy holder’s life. Premium can be raised, lowered or kept the same to meet that target.  It’s sort of like gas in the car.  The idea is to have enough gas (cash value) to reach one’s destination, i.e.  go beyond the person’s lifespan. At the policy’s beginning, target premium is typically set to age 100.  The car’s (i.e. carrier) performance helps determine how much gas (premium) is needed.  With a UL the holder is obliged to take a much more active role in management of the policy.

Does my age affect which type I choose?
Yes, generally select a UL in 40’s and 50’s, and a guaranteed UL in 60’s, 70’s and 80’s

Universal Life: 40’s and 50’s
When younger, in your 40’s or 50’s, you want the flexibility of regular universal life to lower or raise premium payments depending on your financial situation, to build higher cash value and to possibly replace your coverage for a better product later on.

For example:

Mrs. Wright, age 46, takes out a $250,000 universal life policy with the target premium of $150 a month.   Five years later, her child needs braces and her monthly budget is tight.   Since there is $3,000 cash value in her policy, Mrs. Wright, after reviewing an in force illustration, lowers her premium to $100 a month.   One year later after getting back on better financial footing, Mrs. Wright increases her premium to $200 a month until the policy back on track to the original target of age 100.  Later she is able to lower the premium back down to $150 a month.

Guaranteed UL: 60’s, 70’s and 80’s

When older, lock in a benefit amount for a set premium for life.

For example:

Mr. Ward, age 68, would like to leave $500,000 to his son.  He chooses a guaranteed universal life product because the premiums are fixed and the policy is guaranteed to age 121.   He has a secure retirement income and can well afford a fixed premium payment.  He puts those payments on bank draft and can rest assured that this portion of his estate plan is secure.

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