Last Updated: June 2019
Universal Life Insurance Policies with a “No Lapse Guarantee” are being offered at rates well below the guarantees of the past. We believe they are priced too low right now and that rates will continue to rise.
We’ve had a ton of inquiries and questions regarding these policies, so here is everything you need to know.
First of all, Universal life with a No Lapse Guarantee is also referred to as:
- “Guaranteed Universal Life”
- “Term for Life”
- “No Lapse Universal Life”
- “Universal Life with a Secondary Guarantee”
What is Universal Life Insurance with a no lapse guarantee?
Traditional universal life policies will lapse/expire when the cash account dwindles to the point that there are insufficient funds to cover the policy expenses and cost of insurance.
With the “no-lapse” feature, the policies are guaranteed to stay in force for your entire life if the premium is paid regularly and on-time.
What makes no-lapse guarantee universal life different than other permanent policies?
No-lapse policies have little to no cash value compared to cash value-rich whole life policies. They are built purely as guaranteed level premium and death benefit (if you’re interested in cash accumulation, this policy isn’t for you).
Life insurance companies issuing a “no-lapse” policy AVOID paying cash surrender values to policyholders who terminate their coverage so they use this extra source of profit to be able to lower the premiums. This is one of the main reasons why these policies are so inexpensive compared to other permanent products.
What are the risks of a universal life policy with a no lapse guarantee?
1. The risk of paying a premium late. The premium must be paid when due or else the no-lapse guarantee can be revoked. This would make the whole policy implode on itself.
2. Loss of upside potential as compared to competitive “non-guaranteed” permanent policies. If the market does well, in non-guaranteed policies you experience some gains. With no-lapse policies, everything is guaranteed no matter what the market does.
Who should buy a universal life insurance policy with a no-lapse guarantee?
Anyone who wants their life insurance premiums and death benefit guaranteed level for the rest of their lives.
Tips on choosing a life insurance company
Use an independent life insurance agent. In recent cases, we’ve replaced no-lapse guarantee life insurance policies with new ones that were 20% less expensive than what they originally purchased. You want an AM Best “A” or “A+” rated company like Primerica, however, you want to make sure you get low rates by using an agency like Policy Genius. We have access to all of the top companies.
If a universal life with a no lapse guarantee makes sense for you, I would purchase it sooner rather than later. Without getting too technical, just trust Rootfin when we say rates WILL continue to go up over the next months/years. They’ve already started to rise. These policies are priced way to low at this point in time.