The “value proposition” of Guaranteed Universal Life contracts continues to improve with the addition of a “best in class” liquidity rider to Mutual of Omaha’s GULS contract. It is available for sale effective today, June 1st, and brings with it the ability to execute on the “policy split” strategy that many of us are already using on single life sales with Mutual of Omaha. Read on for the details of the launch of the updated product as well as a some guidance on how to run the split strategy illustrations with Mutual of Omaha.
The GRO Rider is available starting June 1, 2016 to all clients who purchase a GULS policy and continue to make the required premium payments (including substandard and tobacco cases)
- Works exactly like the GRO riders on GUL, GUL Plus, and Income Advantage IUL products.
- Offers the ability for policyholders to receive 50 percent of their premiums back at the 15th policy anniversary or 100 percent back at policy anniversary 20, 21, 22, 23, 24 or 25.
- Provides the flexibility to adjust to estate planning needs or other life changes.
- Included at no additional cost.
- Approved in all states except NY.
Transition Rules:
- Rider and pricing changes apply to all GULS applications signed on or after June 1, 2016.
- To receive the old pricing, GULS applications must be signed prior to June 1, 2016 and received in the home office no later than June 30, 2016. These policies will not be issued with the Guaranteed Refund Option rider.
- Contact your underwriting team on pending GULS applications with a sign date prior to June 1, 2016 if the client wants their policy issued with the GRO rider along with the new pricing.
- Please see the formal announcement from Mutual of Omaha for additional details.
The Mutual of Omaha GRO Rider Policy Split Strategy
This design solution is based on offering the client maximum flexibility when managing their insurance assets as they age. A single policy solution with the GRO Rider is great, but a policy split solution allows the client to execute on a “partial surrender” of sorts to unlock a number of options:
Step 1: The Split
Rather than writing a single policy, consider writing two smaller policies. In the case of the GULS from Mutual of Omaha there are no banding issues to worry about, and the only “moving part” is the split of the two policies. Using two Preferred Nonsmoker 55-year-olds purchasing a total line of $5MM, a split somewhere along the lines of 50/50 to 55/45 appears to work, and the 55/45 split was used for the strategy outlined below.
Step 2: Policy Management Options
Option 1: Policy Year 15
By the time the client reaches age 70, they have 50% of the premiums paid available to them via the GRO Rider if they execute a surrender within 60 days of the 15th policy anniversary. If they no longer feel the need for the full amount of coverage, $5MM in this example, they can surrender either of the contracts and simply walk away with the cash: Over $300,000 in this example if they surrender the larger policy.
Option 2: Policy Year 20
If, however, the client elects to maintain the full $5MM at year 15, another window opens starting at the end of year 20 that would allow them to surrender either of the contracts using the GRO Rider. In this instance, they can surrender either contract and have enough cash to effectively “pay up” the remaining policy. Bonus: If they surrender the larger contract, they can drop enough cash into the smaller policy in year 21 to guarantee beyond age 105 AND put some cash in their pockets.
Option 3: Policy Years 21 – 25
Given that the GRO Rider has 5 additional windows in policy years 21 – 25, the client can execute on option 2 at ANY of the five subsequent policy anniversaries, offering the client an unparalleled level of flexibility from an “inflexible” SGUL contract!
Illustrations:
Please contact your Life Sales Team to discuss this concept further or request illustrations for your next survivorship case at 800.992.2642.