Category: GUL

The Level Above Term Life Insurance

by

July 15, 2016

4:45 PM

Comments Off on The Level Above Term Life Insurance

2016, guaranteed universal life, GUL, No Lapse Guaranteed Universal Life, term life vs universal life, whole life vs guaranteed universal life

What is the best type of life insurance term or permanent? It depends on the individual’s situation, but certainly term life insurance and one permanent product called Guaranteed Universal Life (GUL) are straightforward and similar in concept. A Guaranteed UL, also called no-lapse Universal Life, like term has a fixed premium for a set period of time, up to an age 120+ lifetime guarantee.  Of all the permanent life insurance products, Guaranteed Universal Life offers the lowest cost death benefit.  Pay on time and coverage is guaranteed, and the premium is guaranteed never to go up. All you need to figure out what time period is best and affordable. The only real debate between term and guaranteed UL is the comparative cost for the length of coverage.  For example:

Canterskill_Falls,_Catskill_Mountains,_and_Rip_Van_Winkle_Rock

$250,000 coverage, Male, age 48, super preferred, monthly premiums:

$25.06     10 year term
$29.51     15 year term
$37.99     20 year term
$58.22     25  year term
$63.29     30  year term
$172.21   age 90 Guaranteed UL
$213.25   age 120 Guaranteed UL

In this example, as in most cases, 30 year term covers is less expensive than coverage to age 90. The higher premium is a function of the odds of outliving the policy. Check out the Social Security actuarial life table for life expectancy for your age.  This table gives the life expectancy of a 48 year old males as 31.61 years. If you want a more individualized life expectancy try here.

Historical

Universal Life (UL), also called Current Assumption Universal Life (CAUL), has been around since the 1980’s. UL products promised higher cash value accumulation than whole life insurance, but did have a lifetime coverage guarantee.  Many of the those UL products sold in the 80’s and 90’s under performed.  When cash value sinks to zero in a UL policy will lapse, or terminate, unless bolstered by ever higher premiums.  As a result consumers lost confidence in the death benefit protection of Universal Life.  In the early 2000’s the life insurance industry responded by adding a “no-lapse guarantee” or  “secondary guarantee”, typically a lifetime guarantee, as a line of UL products. These Guaranteed Universal Life (GUL) products, a.k.a. Universal Life with Secondary Guarantees (ULSG), have done quite well in the life insurance market, since they offer a lifetime coverage guarantee for substantially less than whole life. Most consumers, especially those in their 60’s and 70’s, for estate planning purposes are interested in low cost lifetime death benefits guarantees, not cash value accumulation. In recent years the Great Recession and regulatory changes winnowed down the number of carriers offering GUL products, but there are still multiple carriers who offer them, giving the consumer a wide range of competitively priced options.

update with revised quotes: 01/09/2023

Term Conversion to Indexed Universal Life (IUL)

by

January 10, 2014

2:42 PM

Leave a comment on Term Conversion to Indexed Universal Life (IUL)

2014, Age 100, age 100 guarantee, Age 120 guarantee, American General Life Insurance Company, Cash accumulation, Cash Value, Conversion, current assumption UL or CAUL, current illustration, exchange, guaranteed universal life, GUL, in force illustration, level term, no exam life insurance, no medical exam, no physical exam, term, term conversion, term life, Universal Life, universal life policies with secondary guarantees

Buick_Convertible_1949

This week I was drawn by a client inquiry into analyzing the merits of converting a term policy into permanent.  A term policy’s ace in the hole is its conversion privileges.  Health conditions may arise as the decades go by. No matter how much one’s health may have changed for the worse, if still within the conversion period, a policy owner can convert all or part of the term policy to permanent without evidence of insurability at the original rate classification.  Be sure to ask about conversion when shopping for term.  It’s the second most important consideration after lowest premium.

For the American General term policy I was reviewing, they currently offered term conversion to either an Indexed Universal Life and a whole life product.  The indexed universal life product “AG Extend IUL” offers a no lapse guarantee rider to age 100.  That’s really great news for American General term policy holders: fixed premium and coverage guarantee to age 100. It would be better to have one to age 120 and beyond, but a lengthy guarantee is much better than not one of all.  It’s one step above the 5 to 25 year no lapse for other Indexed UL or current assumption UL products.

One of the problems with Indexed Universal Life is uncertainty on how it will perform over time.  Illustration shows non guaranteed projections, and they are very speculative in both the interest rate given, and how it’s shown at that rate for all years. An agent would be tempted to show the maximum interest rate allowed by the software. Carriers based those rates based on historical averages, as in the S & P 500 over the last 30 years. So an illustration may shows the S & P 500 annual point-to-point at 7.75% or 8.00% in all years.  Yes, each and every year.   The S & P certainly doesn’t perform like that in real life.  In all years for a 45 year old that projects a positive return, each and every year, for 75 years.   I run my IUL illustration a 5%. It’s more conservative projection but still a very uncertain projection because actual performance of the indexed may vary considerably and the carrier can change cap rates, participation rates and policy charges.

That’s why a lengthy guarantee on an Indexed UL like is “AG Extend IUL” is valuable.  Set the premium to the age 100 guarantee and then down the road the policy holder can evaluate actual performance and make changes accordingly to save on premiums if that age 100 guarantee is no longer necessary. So for example, start an Indexed UL at age 54 with premiums that guarantee coverage to age 100. Then when 75 year old  and in declining health, request an inforce illustration, and project how much premium the policy will need to have coverage to age 85.

If a Guaranteed Universal Life product is offered for conversion, generally that’s a better option to take, especially for those in their 60’s or 70’s.  If only a current assumption UL or Indexed UL is offered, funding it adequately, setting the premium high for plenty of cushion for cash value accumulation is well advised.  Have the agent show illustrations with coverage cash value to endow, or worth the face amount, at age 100.  Those run at target or $1 at age 100 might have more appealing premiums but might end up being underfunded for the long haul.

 

 

James Gandolfini’s estate tax and the role of life insurance

by

August 7, 2013

10:46 AM

Leave a comment on James Gandolfini’s estate tax and the role of life insurance

current assumption UL or CAUL, Estate Maximization, Estate Planning, guaranteed universal life, GUL, ILIT trust, irrevocable life insurance, irrevocable life insurance trust (ILIT), life insurance in a trust, New York, No Lapse Guaranteed Universal Life, no lapse universal life, No-lapse guarantee, term insurance, term life, Term Life Insurance, universal life insurance, Whole Life

James_Gandolfini

James Gandolfini, actor extraordinaire of The Sopranos, who died recently of a heart attack at age 51 apparently has left his heirs subject to a sizable estate tax.  Tax experts noted that they will likely end up owing a significant amount partly due to his residing in New York.  State estate taxes vary considerably depending on which state you reside in.

I was struck by this comment in one analysis as to the very practical role of life insurance in estate planning.

At a minimum, an irrevocable trust should have been set up for Mr. Gandolfini to use to pay insurance premiums toward a life insurance policy that would have covered expected estate taxes, Mr. Wolfe said.

Gandolfini did set up a $7 million life policy for his son in a irrevocable life insurance trust (ILIT).  To give the benefit of doubt, he may of set up others. Life insurance is not required to be in the public domain of probate. One lesson to come out of this is to add life insurance regularly especially when remarrying and having children.  Insurability, the ability to obtain coverage, can be an issue when adding life insurance later in life. Fully underwritten life insurance involves a blood test, and depending on age and coverage amount, an EKG and medical records. In Gandolfini’s case at his age in the absence of identifiable heart disease his rate classification probably would have depended almost entirely on his weight according to the carrier’s build chart.

Estate planning with minor children makes term life insurance an option.  There’s 10, 15, 20, 25 or 30 year term depending on the age of the child and how far it is prudent to carry the coverage out.  Term is inexpensive and conversion allows on to exchange the term into a permanent policy without proof of insurabilty during the term period.

For permanent life insurance the first and foremost estate planning tool is Guaranteed No-Lapse Universal Life locking in coverage to age 120 or beyond.   For other situations and goals the options include current assumption Universal Life, Indexed UL or on the upper cash value and benefit end a Whole Life plan.