#386 | A Shift in Guaranteed VUL

What’s the difference between a Guaranteed UL and a Guaranteed VUL? In theory, the only difference should be that GUL credits a fixed rate to cash values and GVUL provides for the ability to invest cash values in mutual funds via the separate account. Other than that, they should be identical. Both products should have guaranteed premiums to maintain coverage. Both products should have liquid cash value. For life insurers, the primary risk in either product is that the cash value is extinguished but the life insurer remains on the hook to pay the death benefit, something that wouldn’t happen in a typical Universal Life structure.

However, in practice, that’s not how things look. Guaranteed UL products generally have zero cash value. Life insurers long ago figured out that stripping out the cash value resulted in lapse-supported pricing benefits and the ability to make assumptions about future reserve investment returns that are quite a bit different than what they’d be able to illustrate based on prevailing interest rates. Guaranteed VUL, by contrast, has remained a both/and sale – it has both cash value and relatively cheap guarantees. It’s the best of both worlds. At least, it used to be.