The amount of time your life insurance premiums are guaranteed depends on what type of policy you choose. It is very important to choose the coverage that best fits your goals rather than simply choosing the least expensive policy. If your need for coverage is a 30-year time horizon, you would not want to purchase a policy that’s only guaranteed for 10 years. Here is how the rate guarantees work:
Term Life Insurance
You choose a specific “term” period to guarantee your rates. Generally, the choices will be periods of 10, 15, 20, 25, or 30 years. Some companies have other options available, like Prudential’s WorkLife 65 policy that guarantees rates up to age 65 regardless of your current age. After the guaranteed term period ends (e.g. in year 31 on a 30-year guaranteed term period, for example), the premiums will usually jump to a huge payment that would force most people to drop their policy.
Whole Life Insurance
Whole life has the strongest guarantee of all life insurance types. Your premiums are guaranteed to stay the same for the rest of your life. If you choose a participating whole life insurance policy that is eligible for dividends, your premiums can actually decrease over time since the dividends received can be applied towards the premiums owed. Since dividends increase over time, your premiums reduce more and more each year that they are paid (dividends are not guaranteed). In order to reduce the premiums, you would need to elect the option to have dividends applied towards the premium.
Universal Life Insurance
The length of the guaranteed premium period on universal life will depend on what type of universal life insurance you buy. We prefer guarantees here at TermInsuranceBrokers.com, so our preferred universal life option is Guaranteed Universal Life (GUL), also known as universal life insurance with a “no-lapse” guarantee. This guarantee says that as long as you pay your premiums in full and on time without taking any cash value out of the policy, the premiums will stay the same for life, even if your policy has $0 cash value. You can think about GUL as a term insurance policy with rates guaranteed for life since it will never generate much cash value and should not be used for that purpose.
The other type of universal life insurance is called “Current Assumption” universal life. These policies can have varying cash value and premium payments depending on the interest rates credited by the insurance company and the cost of insurance charges within the policy. The guarantees in current-assumption UL will not be as strong as GUL, but may build more cash value depending on the interest rates.