When to Own Guaranteed No-Lapse Universal Life (GUL) Insurance

Among all policy types, NLUL can provide policyowners with the lowest guaranteed premium for a given guaranteed death benefit for an extended period of time. Therefore, the use of NLUL policies would be indicated for clients:

  • whose foremost goal is to obtain liquidity at death while optimizing the death benefit relative to premiums paid and who, therefore, have less interest in or need for cash values for lifetime income purposes;
  • interested in eliminating performance risk such as those policyowners whose current policies have underperformed due to market volatility or due to reduced interest or dividend crediting rates;
  • planning to use irrevocable life insurance trusts to pass wealth to heirs and desiring a policy with the lowest lifetime premium so as to minimize potential gift taxes; and
  • who primarily want liquidity to pay estate taxes.

Given the costs and tradeoffs involved with secondary guarantees, NLUL generally would be less suitable for clients:

  • who wish to insure shorter-term protection needs where traditional term policies for the needed term generally will be less expensive than NLUL policies;
  • looking to have their death benefit levels rise in future years to keep pace with inflation or anticipated increases in liquidity needs at death as a result of a growing estate;
  • unwilling to give up the greater upside cash value and death benefit potential and the more flexible premium-paying options inherent in regular UL policies for the secondary guarantee;
  • who are younger and whose lifetime protection needs, retirement income needs, and estate objectives are not well defined or known and, thus, who probably should retain greater flexibility in their life insurance planning;
  • whose incomes are variable and who are uncertain whether they can commit to paying the periodic premiums required to maintain the secondary guarantee;
  • wishing to preserve their rights to borrow from the cash values of the policy or to make partial withdraws without the limitations and penalties typical of policies with secondary guarantees; and
  • who wish to use their insurance policy cash values as a source for additional retirement income in the event they live longer than expected or otherwise need the cash values for health-related expenses or other unanticipated needs.
Reproduced with permission.  Copyright The National Underwriter Co. Division of ALM

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