Universal Life, IUL and GUL Explained for Life Insurance Agents

Oct 20

Universal life (UL) is permanent life insurance with flexible premiums and an adjustable death benefit. Each month the policy deducts the cost of insurance and fees from the cash value, and credits interest to what remains. How that interest is credited, and how much is guaranteed, is what separates the main types: guaranteed universal life (GUL), traditional or current-assumption universal life, and indexed universal life (IUL). This guide explains how each one works, who it fits, and what agents need to explain about loans, lapse risk and illustrations.

Key takeaways

GUL sells on certainty: the lowest premium for a death benefit guaranteed to a set age, with little or no cash value.
Traditional UL sells on flexibility: cash value earns a rate the carrier declares, with a guaranteed minimum.
IUL sells on accumulation potential: interest is credited based on an index, within a cap and a floor.
All universal life depends on funding. If the cash value can't cover the monthly charges, the policy can lapse unless a guarantee keeps it in force.

How universal life works

Premiums go into the policy's cash value. Every month, the carrier deducts the cost of insurance (based on the insured's age and the amount at risk) and policy charges, then credits interest. The policy owner can pay more or less than the planned premium within limits, and can usually raise or lower the death benefit, subject to underwriting for increases. Because charges rise as the insured gets older, a policy funded at the bare minimum can run out of cash value later in life.

The types of universal life insurance

Guaranteed universal life (GUL)

GUL is priced to keep a guaranteed death benefit in force to a set age, often 90, 100 or 121, as long as the required premiums are paid on time. Cash value is minimal. It fits clients who want permanent coverage at the lowest premium and do not care about cash value, such as estate planning or leaving a set legacy. Late or skipped payments can weaken or end the guarantee.

Traditional (current-assumption) universal life

Cash value earns an interest rate the carrier declares, which can change, with a guaranteed minimum rate in the contract. Premiums are flexible. It fits clients who want lifetime coverage and moderate cash value without index crediting.

Indexed universal life (IUL)

Interest is credited based on the performance of an index such as the S&P 500, using a cap and a participation rate the carrier sets and can change after issue, subject to the guaranteed minimums in the contract, with a floor, often 0%, so index losses are not credited. The cash value is not invested in the index. Some IUL designs focus on death benefit protection at a lower premium, and others focus on cash accumulation with higher funding. Policy charges still come out every month, so the cash value can decline in a year with no credited interest. For a full call framework, see our IUL sales script.

A note on variable universal life (VUL)

VUL invests the cash value in subaccounts that can lose value. It is a registered security and requires FINRA registration (Series 6 or 7) through a broker-dealer and, in most states, a variable life line of authority in addition to a life license, so it is a different sale from the fixed UL products above.

GUL vs UL vs IUL at a glance

Premiums: GUL requires the scheduled premium to keep the guarantee. UL and IUL are flexible.
Cash value: GUL minimal. UL moderate, at a declared rate. IUL varies with index crediting, within the cap and floor.
Death benefit guarantee: GUL guarantees it to a set age if premiums are paid. UL and IUL depend on funding unless a no-lapse guarantee rider applies.
Market exposure: none of the three invests in the market. IUL credits interest based on an index.
Best for: GUL for the lowest-cost lifetime guarantee. UL for flexible coverage with steady cash value. IUL for clients who want accumulation potential and will fund the policy properly for the long term.

Policy loans and withdrawals: what to tell clients

Clients can usually access cash value through policy loans or partial withdrawals. Be specific about the trade-offs:

Loans accrue interest and reduce the cash value and the death benefit if they are not repaid.
Withdrawals reduce the cash value and may reduce the death benefit.
From a policy that is not a modified endowment contract (MEC), loans are generally not taxable while the policy stays in force, and withdrawals are generally tax-free up to the premiums paid (cost basis); amounts above basis are taxable. If the policy lapses or is surrendered with a loan outstanding, the gain can become taxable.
A policy funded beyond federal limits (the seven-pay test) becomes a MEC. Loans and withdrawals from a MEC are taxed gains-first as ordinary income, plus a 10% penalty before age 59½, although the death benefit generally stays income-tax-free.

Avoid promising that a policy will work as a personal bank or produce tax-free income. Show the client the numbers on the carrier's illustration and refer tax questions to a tax professional.

Illustrations and lapse risk

Every UL and IUL illustration has a guaranteed column, based on minimum crediting and maximum charges, and a non-guaranteed column. For IUL, NAIC Actuarial Guidelines 49-A and 49-B cap the maximum illustrated rate and the illustrated loan spread, but those values are still not promised. Show the client the guaranteed values, run a lower-rate scenario, and point out any year the policy could lapse. Encourage annual reviews so the client can adjust premiums before a problem grows.

Who universal life fits

Clients who need coverage that lasts for life, such as for a legacy, estate planning or a special-needs dependent
Business owners funding buy-sell agreements or key person coverage they expect to keep (employer-owned policies need the employee's notice and written consent before issue under IRC 101(j))
Clients with stable income who want cash value and will fund the policy for the long term
Clients converting term coverage to permanent coverage

Clients who need the most coverage for the lowest cost over a set period are usually better served by term life, and clients who want fixed premiums and guaranteed cash value may prefer whole life.

Which carriers in our lineup offer UL and IUL?

Among our 13 carriers, universal life is offered by American Amicable, Foresters and Mutual of Omaha, and indexed universal life by Transamerica, AIG / Corebridge and Mutual of Omaha. Ethos, Americo and many more are on the way. Product availability varies by state, and the products on your contract are confirmed when you contract. See each carrier's profile on the Carrier List and our Life Products page.

Contracting for UL and IUL with BetterLifeQuotes.com

BetterLifeQuotes.com is an NGA / IMO Hybrid & Distribution Partner that will beat your current commission levels and scale your current practice. Our job is to beat your current commission level, and our mission is to make sure you scale with every life insurance product: final expense, term, IUL, UL and whole life.

Solo agents starting out who meet our 6-month minimum requirement start at a 90% commission at contracting.
Back office support (a guided contracting roadmap, a members portal, a carrier resource directory and help with carrier appointments, transfers and contracting questions; sales training, telesales scripts, objection handling, closing strategies, personal coaching and ongoing professional development; an agent management system with production, commission and book-of-business reporting; the CallWave inbound call platform with lead strategy and ROI guidance; and recruiting, training and retention resources for agency growth) comes with every product we contract.
You own your book of business, your renewals and your hierarchy, even upon release, and releases are granted.

Apply as a solo agent, or see contracting for new agencies, established agencies and healthcare agencies.

Universal life FAQ for agents

What is the difference between GUL and IUL?

GUL is priced for the lowest premium that keeps a guaranteed death benefit in force to a set age, with little cash value. IUL builds cash value credited based on an index, within a cap and a floor, but its death benefit depends on funding unless a guarantee rider applies.

Can a universal life policy lapse?

Yes. If the cash value is not enough to cover the monthly charges and no guarantee is in force, the policy can lapse. Underfunding, lower credited interest and large loans all increase that risk.

Do I need a securities license to sell universal life or IUL?

No. GUL, traditional UL and IUL are fixed insurance products, so a state life insurance license plus any carrier product training is what is required. Variable universal life is a security and requires securities registration as well.

Is universal life cash value guaranteed?

Traditional UL has a guaranteed minimum crediting rate, and IUL has a floor on index crediting, but policy charges can still reduce the cash value. GUL focuses on the death benefit guarantee rather than cash value.

Who gets the 90% starting commission at BetterLifeQuotes.com?

Solo agents starting out who meet our 6-month minimum requirement (at least 6 months of continuous life insurance sales, plus the rest of our minimum requirements) start at a 90% commission at contracting. For agencies, our job is to beat your current commission level.

This guide is for licensed agents and is not tax, legal or investment advice. Illustrated values are not guaranteed, and product features vary by carrier and state.

BetterLifeQuotes.com https://BetterLifeQuotes.com