by Kasey Gammons, LifeTrends Sr. Analyst
“100% customer satisfaction guaranteed or your money back!” While life insurance is certainly different than these familiar ads, one of the major trends in guaranteed universal life (GUL) a few years back was a concept that ran along similar tracks known as Guaranteed Refund Options (GROs), also commonly referred to as Premium Refund Option Riders. As fewer and fewer products were able to offer cash value due to that familiar GUL nemesis, the pervasive low interest rate environment, refund options sought to distinguish products by refunding the premium outlay back to the client if exercised, thereby providing at least a cash exit strategy. After a lot of traction through 2016, very little was heard on the GROs development front… that is until this month. Late August in 2018 has seen two GUL releases by New York Life and Nationwide highlighting sparkly, brand new refund options (in my best announcer voice).
History and Players
Historically, the refund option concept was first introduced on a GUL product by Lincoln Benefit Life; it instantly became a hit and gained traction with select distributors. Shortly after, Transamerica followed suit by offering an identical option to a broader distribution audience. While GUL pricing continued to increase over the years, those two carriers led the path and opened up a significant opportunity for other manufacturers to come to market with similar options to help them differentiate themselves from every other mainstream player. LBL’s offering went away with their demise, and Transamerica has since exited the market, while others have risen to carry on the GRO legacy.
Today, there are six life insurance companies who make refund of premium offerings available on their individual GUL products. Between 2013 and 2016, American General (released September 2013, expanded by one option year December 2015), Mutual of Omaha (released October 2014, expanded its option years January 2016), American National (introduced February 2016), and Symetra (introduced March 2016) introduced refund options. The trend reignites with this month’s releases from New York Life and Nationwide.
Back to our commercial announcer, “Terms and conditions may apply.” Unlike the light speed speak that normally accompanied these conditions, we are able to actually take our time to consider and evaluate the limits placed on the GROs. These limits specifically apply to when and how much premium refund the client can receive.
WHEN? Carriers generally require a substantial policy enforce period before offering a full return of premium. Generally, at least twenty years is required before the full refund window opens up for any carrier, although some like Mutual of Omaha (years 20-25) offer multiple chances to exercise the refund. Then, if the client has been monitoring the policy, he or she will have a small use-it or lose-it window to exercise the option. All carriers except Symetra give a sixty-day period following the policy anniversary when the window opens to make use of the exit strategy. Symetra has a slightly longer ninety days until expiry.
HOW MUCH? In addition to certain time restrictions placed on GROs, there are also limits to how much refund is available. All carriers also offer a chance to exercise the Premium Refund Option Rider earlier but at substantially reduced benefit amount (except Symetra). After either 15 or 20 years, depending on the carrier, half of the cumulative premiums are available as a refund. On full-refund options, carriers also place a cap on the amount refundable, expressed in terms of a percentage of the death benefit.
Three products currently have noteworthy twists. While most refund options have been available as an automatic accompaniment to GUL policies, Symetra and Nationwide’s offering requires a slight upcharge (about 1%-3%). New York Life’s windows of returns are unique in that younger age client windows depend on age, while older insureds are the more standard years of duration.
Make a Plan
GROs are frequently marketed as a differentiator on the GUL sale. After all, in a contest between a bail-out option and no exit strategy, it seems very reasonable to opt towards the premium refund alternative. Having that option automatically included in the policy has little to no cost and can only help if exercised appropriately. However, after twenty years paying on a policy, most policy owners probably aren’t at the edge of their seats, ready to pull the very time sensitive trigger on this refund option. For this reason, if there is a desire to activate the refund, it is important for clients to be aware, document accordingly, and have a plan in place to execute this benefit when the time comes. All in all, GROs add value in an otherwise rigid product line, and with the new comers entering the market this month, interest in this option may be on the rise. “For questions, please call 512-280-2522, once again, that number is 512-280-2522.”
 American General is the only carrier to offer a true ROP rider with their guarantee SUL product, offering an uncapped return of premium at year 15 only with their Secure Survivor II.
 American National offers 65% of cumulative premiums after year 15. Does not apply to New York Life for younger issue ages since the lesser premium refund window activates after age 65.