There has been a recent surge of interest in policies that include a refund option rider. The Refund Option Rider is offered as a contractual guarantee on several of our Guaranteed UL plans, including American General, United of Omaha/Companion, and American National (with more carriers soon to join the list). These riders offer clients great flexibility for the future—clients can maintain their coverage on a guaranteed basis for the future or, if their needs change or they want cash in future specified years, they can opt to walk away with a return of their premiums. Unlike the costly Return of Premium Term plans that are available, these Refund Riders are included in GUL contracts at little or no cost.
Listed below are the primary features of each available Premium Refund Rider:
AMERICAN GENERAL—available on the Secure Lifetime GUL. No refund in year 15 is available; Year 20 refund is 50% of premium or 40% of the death benefit; year 25 refund option is 100% of premium or 40% of the death benefit.
American National—available on the Signature GUL. Year 15 refund option is 65% of premiums or 65% of the death benefit; year 20 or year 25 the option is 100% of the premium or 65% of the death benefit.
United of Omaha/Companion—available on GUL and GUL Plus. Year 15 option is 50% of premium or 35% of death benefit; Years 15, 20, 21, 22, 23, 24 or 25 the refund opportunity is 100% of premium or 35% of death benefit.
All of the above refund options offer the client a 60 day window each year to exercise their option for refund. IT IS NOT THE RESPONSIBILITY OF THE CARRIER TO GIVE POLICYOWNERS NOTICE OF THEIR OPTIONS (THOUGH SOME MAY). It is obviously important to warn clients of this so they (and you) can set up a reminder system. In addition, it is important that clients correctly fund their policies in a timely fashion to avoid the removal of the rider due to insufficient premiums paid. All GUL contracts require appropriate planned premiums being paid to maintain guarantees and options such as the refund option rider.
You also may have noted language above that states, for example, “100% OR 65% of the death benefit”. There are limitations based on the age/rate class of the policyholder—it is important that you and your client read the language on each illustration to avoid misunderstandings. In addition, you must verify on each illustration the availability of the rider. For example, United of Omaha/Companion exclude smokers from their eligible group.
Long story short? The Premium Refund Option is a fantastic (usually free) option to offer clients, and is one that can set you apart from competitors. You must, however, always read the illustration’s details to accurately describe to clients their options.
Call us today to see this option for your clients. You will make more sales and have more great flexibility to offer your clients
We look forward to hearing from you,
Pat Joline, CLU, ChFC