Signature Guaranteed Universal Life Insurance Case Study:
Sonny and Maureen, 42, had been discussing their future and how they would save for retirement in order to retire early in 20 years when they reached age 62. Sonny was the primary provider while Maureen worked part time when the kids were in school to help with the finances. In addition to saving for early retirement, they had two important goals: providing permanent, affordable, life insurance protection for the family and paying off the mortgage before retirement. They met with their Financial Advisor who talked to them about their situation and then made recommendations as to how they could accomplish their goals.
Affordable, Permanent Protection for the Family
The Advisor then showed them an illustration for a $500,000 Signature Guaranteed Universal Life (Signature GUL) policy from American National with a premium of $319.10 per month on Sonny’s life. He told them this was a very cost effective way to provide permanent protection for their family. The monthly premiums were more affordable than other types of permanent life insurance leaving them with additional resources to save for college and retirement. If something were to happen to Sonny, the policy ensured that the family would be able to have funds that could be used to send the children to college, allow Maureen to pay off the mortgage on the family home, and any remaining funds could go towards Maureen’s retirement.
Paid Off Mortgage
The advisor then talked to Maureen and Sonny about how the Cash-Out Rider included on the Signature GUL policy could be used to help pay down or pay off their mortgage early. The Cash-Out option would allow them to surrender the policy and receive a partial return of premiums paid on the 15th policy anniversary or a full return of premiums paid on the 20th or 25th policy anniversary, subject to a death benefit cap.
Maureen and Sonny initially seemed hesitant at the idea of surrendering their permanent policy but their adviser reminded them that the Signature GUL would meet their current permanent protection needs while also providing additional options through the Cash-Out Rider that could help if their needs changed over time.
In 20 years when Maureen and Sonny wanted to retire, their kids would be educated and living on their own while they would be starting retirement. However, if they wanted to retire at 62, there would still be eight years left on their mortgage, resulting in additional risk with the remaining debt while in retirement. The advisor walked them through a Signature GUL illustration which showed that, at the 20th policy anniversary, the Cash-Out value would be $76,584. Sonny and Maureen checked their amortization schedule and found that there would be $76,392 left on their mortgage at the time the policy’s 20th anniversary would hit, and the Cash-Out Rider would provide just enough to pay off their mortgage in time for retirement. They would have enjoyed the $500,000 death benefit protection for 20 years when they needed it to protect their family, surrendered and cashed-out the policy using the Cash-Out Rider, and then redirected the premiums they had paid over the years to help fulfill their other goals of early retirement and a paid off mortgage.
Here is how the numbers worked out:
|Signature GUL Death Benefit:
(42 M, Standard, NS, to 95)
|Cash-Out at year 15||$37,335|
|Cash-Out at year 20||$76,584|
|Cash-Out at year 25||$95,730|
|Initial Mortgage @3.7% (taken at age 40)||$200,000|
|Mortgage Balance at age 62||$76,392|
Source: American National