Key Takeaways
- Permanent group life insurance with cash value.
- Lifelong coverage, premiums deducted via payroll.
- Cash value grows tax-deferred, flexible benefits.
- Coverage can continue after employment ends.
What is Group Universal Life Policy (GULP)?
A Group Universal Life Policy (GULP) is a type of permanent life insurance provided to a group of employees or members, combining lifelong death benefit protection with a cash value component that grows tax-deferred. Unlike term insurance, GULP offers flexibility in premiums and death benefits under a single group contract, often facilitated by the employer for convenience.
This policy’s cash value grows through excess premiums earning interest, similar to concepts like earned premium, and may include options to adjust coverage as life changes occur.
Key Characteristics
GULP’s distinct features make it a valuable option for group coverage and savings accumulation:
- Permanent Coverage: Provides lifelong insurance as long as premiums are paid, contrasting with temporary group term life policies.
- Cash Value Accumulation: Excess premiums build a cash value that grows tax-deferred, comparable to how DAC affects insurance accounting.
- Flexible Premiums: You can adjust premium payments within limits to increase cash value or cover rising costs.
- Death Benefit Options: Typically ranges from one to two times your salary, with the face value being adjustable under certain conditions.
- Employer Administration: Premiums are often payroll-deducted, simplifying payments and maintaining coverage continuity.
How It Works
GULP operates through a master group contract provided by the employer or organization covering multiple individuals. Premiums are deducted regularly, with part covering the cost of insurance and the remainder contributing to the cash value, which earns interest tax-deferred.
You can access this cash value via withdrawals or loans, but doing so may reduce the death benefit unless repaid with interest. Additionally, if you become terminally ill, some policies allow accelerated benefits, providing access to a portion of the death benefit early, often tax-free.
Examples and Use Cases
Group Universal Life Policies are commonly used by employers to offer permanent life insurance benefits with savings potential. Examples include:
- Airlines: Employers like Delta may offer GULP to employees as part of their benefits package, combining protection and tax-deferred savings.
- Long-Term Employees: Individuals planning for lifelong coverage while building a cash reserve that can be leveraged during emergencies or retirement.
- Supplemental Coverage: Employees who want more than basic group term insurance but prefer lower-cost group rates compared to individual policies.
Important Considerations
While GULP offers flexibility and permanent coverage, it typically has higher premiums than group term life insurance and may carry fees affecting cash value growth. Understanding your ability to pay taxation on benefits and withdrawals is essential to optimize policy use.
Before committing, consider how the policy fits your long-term financial goals and whether combining it with other products, such as those highlighted in our best low-cost index funds guide, might better serve your investment and protection needs.
Final Words
Group Universal Life insurance offers lifelong coverage with the added benefit of cash value accumulation at typically lower group rates and without medical exams. To make the most of this option, review your employer’s specific GUL plan details and compare them with individual policies to ensure it fits your long-term financial goals.
Frequently Asked Questions
Group Universal Life Policy (GULP) is a type of permanent life insurance offered to groups, usually through employers. It combines a death benefit with a cash value component that grows tax-deferred, providing lifelong coverage as long as premiums are paid.
Unlike group term life insurance, which only provides coverage for a specific period, GUL offers lifelong protection with a cash value component. Term life has lower premiums but no savings element, while GUL builds cash value and is often portable after employment ends.
Yes, the cash value in a GUL policy grows tax-deferred and can be withdrawn or borrowed against for any purpose, such as emergencies. However, withdrawals or loans may reduce the death benefit unless repaid with interest.
Many GUL policies include accelerated death benefits allowing terminally ill policyholders to access up to 75% of their death benefit tax-free if certified by two physicians and life expectancy is 12 months or less, while premiums continue on the full coverage amount.
GUL coverage often remains in force after leaving your employer as long as you continue to pay the premiums. This portability is a key advantage over traditional group term life insurance, which usually ends with employment.
Yes, GUL premiums are generally higher than term life because they provide permanent coverage and include a cash value component. However, group rates are typically lower than individual policies and no medical exam is usually required.
Yes, GUL policies offer flexibility to adjust death benefits and premiums within certain limits. Overpaying premiums can increase the cash value up to IRS caps, but changes may affect your coverage and costs.
The cash value in GUL grows based on interest rates that may vary with market performance, so returns can be less predictable than whole life policies. Fees and poor investment results can reduce cash value, potentially leading to policy lapses if premiums are insufficient.
