What is Universal Life Insurance with a No Lapse Guarantee?

Key Takeaway

Universal life insurance with a no-lapse guarantee is a type of permanent life insurance that can provide lifetime protection and coverage if you make required premium payments, or meet other specific contractual requirements. With the type of policy based on a premium requirement, if your premiums are paid on time and at the level required in the contract, your coverage is guaranteed to remain inforce even if your contract’s value drops to zero.  There are other types of no-lapse guarantee products that will have alternative contractual requirements, but meeting those will also keep your policy inforce even if your contract value becomes zero.  

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4/30/2024

Universal Life with a  No Lapse Guarantee insurance provides you a guarantee regardless of how interest rates or your policy’s charges impact your contract value. An additional benefit of this type of product is that you can pay your premiums on a flexible schedule that fits your circumstance, and as long as your premiums meet the contractual requirements, your coverage will stay inforce. In addition, your policy can accumulate cash benefits.

Overview of the Basic Components of Universal Life with a No Lapse Guarantee


Universal life insurance with a no-lapse guarantee is a type of permanent life insurance that provides lifelong coverage and includes a feature ensuring that the policy will not lapse as long as certain conditions are met, typically related to premium payments. Here's how it generally works:


Basic Structure:
Like traditional universal life insurance, this policy combines a death benefit with a savings component. Part of your premium goes towards the cost of insurance (providing the death benefit), and the rest goes into a cash value account that earns interest over time.

No-Lapse Guarantee (NLG): The distinguishing feature of this type of policy is the no-lapse guarantee. This guarantee ensures that the policy remains in force, regardless of fluctuations in the cash value, as long as the required premiums are paid on time and in full, or you meet other specific contractual requirements.

Premium Payments: You, as the policyholder, must make premium payments to keep the policy active. These payments are typically calculated to cover the cost of insurance and any administrative fees, as well as contribute to the cash value component of the policy.

Cash Value Accumulation: The portion of your premium allocated to the cash value account earns interest over time, typically at a rate set by the insurance company. This cash value can grow tax-deferred and can be accessed through policy loans or withdrawals, although loans may reduce the death benefit if not repaid.

No-Lapse Guarantee Conditions: The conditions for maintaining the no-lapse guarantee vary depending on the insurance company and the specific policy. Typically, they involve paying a minimum premium amount on time, without taking excessive loans or withdrawals that could deplete the cash value below a certain threshold.

Flexibility: Universal life insurance policies often offer flexibility in premium payments and death benefits. You may be able to adjust the premium payments or the death benefit amount over time, within certain limits. To meet the no-lapse guarantee requirement, companies will have various stipulations; typically the premiums paid as of specific points in time must meet the contractual minimums through that time period.

Cost: Policies with a no-lapse guarantee may have higher required premiums compared to traditional universal life insurance policies. This is because the insurance company assumes more risk by guaranteeing that the policy will not lapse, regardless of fluctuations in the cash value. However, the required premiums may be lower than other types of permanent insurance that focus more on accumulating cash value.  The no-lapse guarantee premiums are designed for protection more than accumulation.

Death Benefit: The death benefit is paid out to the beneficiaries named in the policy upon the death of the insured, provided the policy is in force at the time of death.

Overall, universal life insurance with a no-lapse guarantee can offer a combination of lifelong coverage, cash value accumulation, and the security of knowing that the policy will not lapse as long as you meet certain premium payment requirements.


Who Benefits from Universal Life with a No Lapse Guarantee?


If you want to avoid the risk of cash value fluctuation resulting in your policy lapsing, then you may want to consider Universal Life with a No Lapse Guarantee.  For people who are confident in their ability to make regular premium payments, in full and on time, this product could help eliminate risk. In addition, if you are purchasing your policy primarily for insurance protection, and don’t anticipate needing to take withdrawals or loans, the no-lapse guarantee could be a good fit for you.

Overall, these policies may suit a wide range of financial plans, whether you’rea homeowner trying to plan for the future or exiting the business world and embracing retirement. However, this type of policy might be ideal for someone who cares less about the investment component of a cash value or a product reliant on the account value component. 

Non-Guaranteed Universal Life vs. Universal Life with a No-Lapse Guarantee



No-lapse guarantee universal life (NLGUL) and universal life (UL) policies without a no-lapse guarantee are both types of permanent life insurance, but they have some key differences:

  1. No-Lapse Guarantee Feature:
    - NLGUL: The primary feature of NLGUL policies is the no-lapse guarantee, which ensures that the policy remains in force as long as the required premiums are paid, regardless of changes in cash value.
    - UL: Regular universal life policies do not typically come with a no-lapse guarantee. The policy may lapse if the cash value is insufficient to cover the cost of insurance and other charges, even if premiums have been paid consistently.
  2. Premium Payments:
    - NLGUL: Premiums for NLGUL policies are structured to ensure that the policy will not lapse, with a focus on meeting the minimum premium required to maintain the no-lapse guarantee.
    - UL: Premium payments for regular UL policies may be more flexible, allowing you to adjust the amount and timing of payments within certain limits.
  3. Policy Cost:
    - NLGUL: Policies with a no-lapse guarantee typically have higher premiums compared to regular UL policies. This is because the insurance company assumes more risk by guaranteeing that the policy will not lapse.
    - UL: Regular UL policies may have lower premiums, but they come with the risk that the policy could lapse if the cash value is insufficient to cover the costs.
  4. Cash Value Growth:
    - NLGUL: Cash value growth in NLGUL policies may be more conservative, as the focus is on ensuring the policy remains in force rather than maximizing cash value accumulation.
    - UL: Regular UL policies may offer more opportunities for cash value accumulation, with the potential for higher returns depending on market performance. However, there is also a risk of the policy lapsing if cash value growth is less than expected.
  5. Flexibility:
    - NLGUL: NLGUL policies may offer less flexibility in terms of premium payments and cash value usage, as the primary goal is to maintain the no-lapse guarantee.
    - UL: Regular UL policies often offer more flexibility in premium payments, death benefit options, and cash value access.
  6. Risk:
    - NLGUL: NLGUL policies transfer more risk to the insurance company, as they guarantee that the policy will not lapse as long as premiums are paid, regardless of changes in cash value.
    - UL: Regular UL policies transfer more risk to the policyholder, as the policy may lapse if the cash value is insufficient to cover expenses.


Overall, the primary difference between NLGUL and regular UL lies in the presence of the no-lapse guarantee feature, which provides additional security and stability but typically comes with higher premiums and less flexibility.


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The information above is for educational use only and does not represent insurance, tax or legal advice. It is not a recommendation or solicitation to buy insurance. Please talk to your licensed insurance agent for more information about life insurance and your needs. Please consult with the appropriate professional for tax or legal advice. Guarantees are backed by the claims-paying ability of the issuing insurance company.


Article Author: Meredith Bell
Author Bio: Meredith joined Everly in 2022 and has 20+ years of experience in the life insurance industry. She has held various roles in advertising, marketing, communications, sales and distribution support, and product development. Outside of the office, Meredith lives with her daughter Kennedy and their dog Mavis. Meredith enjoys cooking, camping, gardening, hiking, and bourbon (though not always at the same time). She is a live music enthusiast and an avid reader. Her favorite quote is by Thomas Jefferson: "I cannot live without books." Meredith agrees, but would add cheese, movies, and dogs to that list.

Policies are issued by Everly Life Insurance Company (“Everly Life”), Topeka, KS. Everly Life is not licensed in the state of New York and does not solicit or transact business in New York.

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