What is a no-lapse guarantee in IUL?
A no-lapse guarantee is a contract feature or rider. An indexed universal life (IUL) policy normally lapses when its cash surrender value cannot cover the monthly charges. With a no-lapse guarantee, the death benefit stays in force for the guarantee period provided the premium test is met: cumulative premiums paid, less withdrawals and loans, must stay at or above a required minimum, or a notional shadow account kept by the insurer must stay positive. If the test is failed, the guarantee falls away and the policy depends on its cash value again.
An extended no-lapse guarantee runs for a longer period, in some designs to an advanced age, and needs a higher required premium. Availability, length and conditions vary by insurer and product, and some designs built for cash value growth carry a short guarantee period or none. The policy terms and the illustration show what applies.
A no-lapse guarantee keeps a universal life policy's death benefit in force even if the cash surrender value falls to zero, as long as the policyholder meets a set premium test on time.
