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Guaranteed Policy Types
Whole Life (participating or par)
lifetime protection, builds cash value, dividends (best ages 0 – 45)
Pros: lifetime guarantee, guaranteed cash value accumulation; eligible for dividends, dividend advantages: increasing death benefit, additional cash value accumulation, paid up insurance, dividends may be used to offset premiums, cash value protects policy from lapsing if premium payments are late or missed; loans, withdrawals; access to cash value. Whole Life is the premier life insurance product and recommended if affordable
Cons: 2 to 3 times more expensive than Guaranteed Universal Life
Guaranteed Universal Life (GUL) Recommended: lifetime guarantee, level fixed premium
Coverage Guarantee to age 120 at fixed premium (best ages 55 – 75)
Pros: no-lapse guarantee to age 120 or longer; level premium locked in; much less expensive than whole life; death benefit guarantee; minimum death benefit amount $25,000; limited pay options reduce overall cost: single premium, 10 pay, 15 pay, 20 pay, etc.; like Whole Life Insurance with fixed premium lifetime guarantee, but without the cash value; like Term Life Insurance but permanent, coverage to age 120 or beyond
Cons: timely premiums payments required or the policy will lapse; generally builds no cash value; level death benefit; lack of flexibility; inability to make policy changes; more expensive than term insurance
Best additional feature: long-term care or chronic illness benefit
Additional features with select carriers: catch-up provision; flexible continuation guarantee; return of premium (ROP); guaranteed cash value accumulation; dial a guarantee age; age 90, age 95, age 100, age 105, age 110 guarantee for less premium than age 120 guarantee; premiums to age 100 with age 120 no-lapse guarantee; option to decrease face amount; flexible payment schedule
Guaranteed Indexed Universal Life (GIUL) Recommended lifetime guarantee, cash value accumulation
lifetime no lapse guarantee, policy values tied to stock market (best ages 30 – 60)
Pros: lifetime no lapse guarantee at a fixed premium; cash value accumulation indexed to equities; sufficient cash value accumulation may allow a flexible premium approach to lifetime coverage in lieu of the fixed premium age 120 guarantee; access to cash value
Cons: missed or late premium payments, policy changes, discontinues lifetime guarantee; lack of premium flexibility to maintain lifetime guarantee; cash value accumulation decreases rapidly in mid to late 80’s due to higher cost of insurance and mortality costs; increasing death benefit option decreases rapidly in 80’s; complexity;
Best additional feature: chronic illness benefit
Guaranteed Survivor Universal Life (GSUL) Second to die life insurance for couples (best ages 50 – 80)
Pros: lifetime no lapse guarantee; less expensive than indivdual guaranteed universal life; one insured could be in poor health or insurable and still qualify for coverage
Cons: timely premium payments required or the policy will lapse
Best additional feature: long-term care or chronic illness benefit
Term Insurance coverage guarantee at level premiums for 10, 15, 20, 25 or 30 years (best ages 25-60)
Pros: affordable, coverage guarantee, lower premiums, guaranteed level premiums, cost effective for larger coverage amounts, conversion to permanent product without proof of insurability
Cons: level premiums end after the specified period, not designed for lifetime coverage, no cash value
Whole Life (non participating or non-par)
final expense, lifetime coverage guarantee (best ages 60’s and 70’s)
Pros: lifetime guarantee, fixed guaranteed premium, builds cash value, paid up insurance, less expensive for small face amounts $2000 to $8,000, final expense; less stringent underwriting guidelines, simplified issue, short application, no blood test
Cons: non-participating no dividends, two times more expensive than Guaranteed Universal Life; level death benefit
Guaranteed Acceptance Life Insurance cannot be turned down
Pros: guaranteed acceptance, fixed premium never goes up; in case of accidental death, full and immediate death benefit
Cons: graded death benefit for first 2 years (some carriers 3 years) before full death benefit; if death occurs in first 2 years premiums returned plus interest. Interest rate is generally 5% or 10%; maximum death benefit generally $15,000 to $25,000
Non Guaranteed Policy Types
Indexed Universal Life (IUL) policy values tied to stock market index; Cash value accumulation
Pros: cash value accumulation; increased face amount option; loans for retirement income; guaranteed at least zero percent indexed floor, no negative index crediting rate; premium flexibility; money grows income tax-deferred; premium flexibility; loans for retirement income; access to cash value; overfunding for maximum cash value accumulation non-MEC
Cons: not lifetime guaranteed, carrier can lower cap rates down to a guaranteed minimum; carrier can increase cost of insurance (COI) charges up to guaranteed maximum; lower cap rate or higher COI could deplete cash value down to zero and cause policy to lapse without substantial premium increases. IUL policyholders have the same vulnerability to COI increases that many traditional UL policyholders have faced in 2015 and 2016. Closely review the no lapse guarantee provisions and guaranteed elements on the left hand side of the illustration’s tabular values; product complexity; illustration proposal complexity; need to monitor in force policy performance
Important Note: To avoid the downside risk of cost of insurance increases, consider an IUL product with an age 120 no lapse guarantee: Guaranteed Indexed Universal Life (GIUL) listed above.
Universal Life (UL, Traditional Universal Life, or Current Assumption Universal Life)
Pros: cash value accumulation; increased face amount option; death benefit; premium flexibility
Cons: lapse vulnerability; carrier can raise cost of insurance (COI) charges significantly to such an extent that the policy holder would be compelled to pay substantially higher premium or lapse the policy. Certain UL policies sold in the 1980’s, 1990’s, and 2000’s have experienced significant COI rate increases in the past two years.
Variable Universal Life (VUL) policy values tied to stock market index; Cash value accumulation
Pros: cash value accumulation, premium flexibility, investment feature, investment choices, death benefit, potential higher rate of return,
Cons: investment risk, cost of insurance increase risk, product complexity, illustration complexity