Permanent life insurance, also known as guaranteed universal life insurance (GUL), is designed to provide a guaranteed lifetime of coverage protection. Permanent life insurance is often referred to as “permanent term insurance” because of its simple fixed premium feature, just as a term life insurance policy. However, unlike term life insurance, you will never need to worry about coverage ever ending or your premium increasing during the life of the contract.
Permanent life insurance is not like the old universal life insurance policies
Permanent life insurance policies have undergone a big change since the start of the early 2000s. If you are familiar with universal life insurance, currently own one now or owned one in the past you may be aware of the horror stories associated with them. Many universal life insurance policies purchased prior to 2000 have not performed as projected and have become a major headache for many policy owners.
The Problems with Older Universal Life Insurance Policies
The problem with older universal life insurance policies is that they were based off of projected interest rates. These projected interest rates in many cases were as high as 16% showing large cash value earnings. With interest rates that high why wouldn’t you buy one? That’s some nice cash value earnings! The high cash value earnings were intended to offset the increased cost of insurance throughout the policy years.
The Problem: interest rates never made it to those highly projected rates. Interest rates early on were good and decent cash value was made to cover the increased cost of insurance, but as the years went on and the economy went down, so did interest rates. When interest rates went down, cost of insurance went up and cash values decreased causing policy owners to either pay more money to continue coverage or even worse let the policy lapse entirely.