A sea-lover afraid of getting in over their head probably wouldn’t buy a high-powered jet ski, but they may purchase a reliable boat. Which universal life “jacket” would you pitch to them?

That was a bit of a trick question. To answer it, you’d need a lot more information about your potential client, including their age, financial situation, goals, and preferences. You’d also want to know about any old life “jackets” they may have purchased in the past.

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Once you fact-find to create an adequate client profile, you can calculate your client’s life insurance needs. Then, check if one of the three main types of universal life products — guaranteed, traditional, or index — could work for your client using our brief notes below.

Guaranteed Universal Life (GUL)

If your client simply wants to secure lifetime coverage, “no-lapse” guaranteed universal life (GUL) insurance may be the right product.

Generally speaking, GUL is less expensive than traditional universal life and whole life, but more expensive than term. It can insure individuals up to age 120, offers a tax-free, guaranteed death benefit and has fixed, guaranteed premiums. Additional protection is also available via critical and chronic illness, long-term care, living benefits, and other riders.

Who are the ideal clients for GUL?

  • Younger individuals who don’t want stock market risk, but do want a lifetime guarantee rather than a term policy.
  • Older clients seeking a guaranteed death benefit that they will not outlive.
  • Older clients who want more than what a final expense or term life policy can provide, but don’t want to pay for whole or traditional universal life.

Traditional Universal Life (UL)

Does your client want a lifelong policy that not only provides a death benefit but also builds some cash value? Would they like the ability to pay higher or lower premiums depending on their financial situation? Are they wary of the stock market? A traditional universal life policy may suit them well.

Like GUL products, traditional universal life (UL) products can provide lifetime coverage if they’re funded properly. Clients can attach riders to these products as well. Unlike GUL products, traditional UL products build cash value at an interest rate percentage declared by the carrier and have flexible premiums.

If the client pays more in premiums when they’re better off financially, they can then pay little to nothing at all during times of financial hardship by using the cash value of the policy to pay the premiums. However, it’s important to note that if the policyowner only pays the minimum required premium, the policy will not build a significant amount of cash value. Consequently, the policy could eventually become underfunded and lapse.

Who are the ideal clients for traditional UL?

  • People who want a life policy that can last their entire life and build cash value.
  • Individuals looking for premium payment flexibility.
  • Parents looking to provide life insurance and income for their children — loans can provide needed college funding or the down payment for a home.
  • People looking for supplemental retirement income or income replacement during retirement — cash value provides emergency funds in case of critical illness, disability, or needed income.
  • Clients who are wary of tying their policy to the stock market.

Index Universal Life (IUL)

Is your client interested in a life policy that can accumulate cash value at a faster rate than a traditional UL policy? Are they OK with their funds being tied to a stock market index?

Similar to traditional UL, index universal life (IUL) insurance can provide lifetime coverage and build cash value if funded properly. But, instead of tying the cash value component to a set percentage (like traditional UL policies do), IUL policies tie it to an index, like the S&P 500. As a result, this product helps clients realize some of the upside of investing in the stock market while protecting them from market downturns. We say some because IUL products often come with interest rate caps and/or participation rates.

With IUL, policy charges are deducted from the cash value account. As with traditional UL and GUL, clients can also add riders to these policies.

Who are the ideal clients for IUL?

  • People who want a life policy that can last their entire life and build cash value.
  • Individuals looking for premium payment flexibility.
  • Younger clients who can use IUL to start saving for retirement.
  • Parents looking to provide life insurance and income for their children — loans can provide needed college funding or the down payment for a home.
  • People looking for supplemental retirement income or income replacement during retirement — cash value provides emergency funds in case of critical illness, disability, or needed income.
  • Clients who want less risk than with traditional investments, such as mutual funds, but are willing to accept some risk.

Who Shouldn’t Buy Universal Life?

If you have older clients who are looking for a small policy (around $25,000 or less) to cover their final expenses and end-of-life remaining debts, you’d probably be better off selling them a final expense policy or a whole life policy.

Additionally, younger adults who have children, higher debts, and a mortgage are often more ideally suited for a term life policy.

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Without asking the right questions, you can only speculate the risks a client may be comfortable taking. Don’t leave your clients out to sea with a life “jacket” that doesn’t fit their needs or preferences. Have an unbiased discussion to figure out what works best for them.