5 Items to Consider Before Buying a Guaranteed No-Lapse Universal Life (GUL) Insurance Policy

Even considering the risks, the relative inflexibility, and the potential missed up-side opportunity with NLUL, some consumers will find the low-priced guarantee desirable. Those who proceed to shop for this product should carefully follow these guidelines and consider independent and objective assistance in doing so:

  • Check the policy language and determine the consequence of a missed premium payment and the means of determining whether a policy premium has been paid on time. Generally, agents do not discuss or understand these points and, whether intentionally or not, give incorrect or misleading reassurance. Policy terms in these areas often are not well defined and, in some cases, seem designed to cause the high level of policy lapses insurers require for these policies to be profitable.
  • Review the insurer’s financial ratings and trends in ratings, especially from those rating agencies that have taken the lead in this area and most carefully weighed and publicly discussed the potential impact of the guaranteed death benefit universal life product on an insurance company’s future financial condition.
  • Fully explore the market and compare policy costs and benefits. Guaranteed death benefit policies’ death benefits can vary by 15 to 30 percent or more for the same premium outlay. The more highly-rated companies generally have the lower-cost alternatives.
  • Look for lower commissions and surrender charges. Most NLUL policies pay high commissions to selling agents. For example, both the Moody’s and Fitch reports show typical first-year commissions equal to 99 percent of the premium and annual renewal commissions of 5 percent of the premium. However, some policies have lower commissions, with surrender charges lasting only five years, instead of the more common fifteen- to twenty-year period. This difference not only may result in a higher death benefit, but the relatively much greater cash value build-up provides policyowners with the flexibility to consider a policy exchange in future years if increasing interest rates result in a lower premium for an equivalent death benefit in a new policy.
  • Consider the possible savings from a step-rated or increasing premium NLUL policy. A policy that starts with a comparatively lower premium that increases in later years may, in some cases, offer a significant savings over a level-premium design. Of course, this would be the case especially if the insureds die early and avoid the much higher-level annual premium cost of the later policy years. That particular scenario generally is not the most desirable plan or probable outcome, but in some cases the benefit might also result even if the insureds live a long time. Purchasers or their advisers need to evaluate such cost comparisons on a case-by-case basis. Part of the savings results from a reduced agent’s commission, because insurers pay commissions based on the initial lower premium.
Reproduced with permission.  Copyright The National Underwriter Co. Division of ALM

Leave a Comment