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Making The Right Choice: GUL or IUL?
As a sales advisor, wholesale insurance market brokers often ask me for advice about the best-suited products for their clients – Guaranteed Universal Life (GUL) or Index Universal Life (IUL)? I can certainly give general guidance about all the offerings on the market. However, to make the best recommendation, I need to have a full picture of their customer’s needs. In the insurance world, there is no such thing as a one size fits all solution.
At GT Mandalay, we carry a range of products that cover particular circumstances, including Term Life for temporary needs, Index UL for income accumulation goals and Guaranteed Death Benefit UL, just to name a few. Recently our firm added a new U.S. carrier that offers several great products: Guaranteed Universal Life, Index Universal Life and a hybrid product that has guaranteed and accumulation features.
Guaranteed Universal Life
One of our most popular products, comprising 50% of our sales at GT Mandalay, are Guaranteed ULs. It’s the type of insurance for those who just want peace of mind. In its purest form GULs provide a lifetime guaranteed death benefit, as long as the policyholder pays all the scheduled premiums on time. And, it can also be designed to deliver a customized guarantee for the client, up to age 80, 90 or 100. With almost every life insurance carrier in the U.S. offering at least one GUL product, pricing on GULs is extremely competitive.
Index Universal Life
Index Universal Life products are a slightly more complicated than GULs. With traditional universal life policies, the issuing insurance company declares a fixed rate of interest that is credited to the cash value of the policy. For an IUL, interest is credited based in part on the potential upward movement of a specific stock market index, like the S&P 500, over a defined period. Over the long-term, this could mean more cash value in the policy, which the policyholder can access through loans or withdrawals. However, the market index can also go down, but most IUL products have a minimum guaranteed interest rate that protects against index losses.
Another important thing to know is that Index products need time to accumulate cash value. In my opinion, IULs are more appropriate for younger to mid-age investors who pay a very low cost of insurance. Age is important because when you are younger more of the premium is allocated to the index strategy and the policyholder will recognize more gains from the effects of compound interest and the benefits of tax-deferred growth.
For older clients an index product may not be suitable, as they will have to pay a higher cost for insurance and incur higher policy fees. With less time to accumulate cash and a smaller amount of the premium going to the index account, the policy may not perform as expected. For this type of client, we would recommend a GUL option where the policyholder can choose to make a single lump-sum payment at the beginning of the policy, or they can make three or five premium payments. In this scenario, the benefit coming out of the policy is a large non-taxable death benefit. You will also find that your client is eligible for double the coverage with the same amount of premium compared to an index UL.
In my opinion, the long-term success of any broker is ultimately dependent on the quality of advice and service they provide to each client. Always analyze each one of your clients as individuals. You will then be in the strongest position to offer them advice on the best fit – an GUL of IUL – for their unique position in life.
Please feel free to reach out our sales support team anytime to get a competitive analysis on the different products available for your clients.