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What is Return of Premium Life Insurance?

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Life insurance policyLife insurance sucks. If you outlive your policy, you spent a lot of money for not much of anything. If you don’t outlive your policy, well shucks you didn’t waste your money on premiums… but you’re dead.

So when my insurance company sent me a package detailing one of their newest offers, a “return of premium life insurance” policy, I was intrigued. The basics of the policy are simple – you pay premiums for term life insurance and if you outlive your policy, your premiums are returned to you. If you outlive your policy, you haven’t wasted your premiums. If you don’t, then the premiums were “worth” it.

What’s the catch?

So where’s the catch? Nothing in life is free, right?

In return for the return of premium piece, you pay higher premiums than you would on a life insurance policy without a return of premium option. The insurance company can take the difference and invest it, thus helping it generate a profit regardless of whether you outlive the policy.

There isn’t a catch but does that mean it’s worth it?

Are Return of Premium Life Insurance Plans Worth It?

I believe it comes down to your approach towards insurance. When you buy non-required insurance, you’re buying peace of mind. For auto and homeowners, you are required to purchase it because of state law or because your lender requires it. For other insurances, like umbrella, accidental death & dismemberment, disability, or life insurance, it’s about being able to sleep at night and not worrying what would happy should something bad happen.

Life insurance is tough because as I said at the onset of this post, if you outlive your policy you feel like you’ve wasted money. You bought insurance but you never needed it. You’re happy about not needing it but you kind of wish you knew you didn’t need it and could’ve saved that money. The return of premium plan gives you the ability to pay for not having to worry about outliving your policy.

No amount of financial comparisons or breakdowns will really help you come to grips with whether you want to do a return of premium life insurance plan or a regular term life insurance plan. If it doesn’t bother you to outlive your policy, then you will probably want a regular vanilla term life plan and invest the difference in premiums. If you think outliving your plan will bother you, a return of premium plan may be for you if it gets you past that mental block and onto a policy you need (of course, if you need it, though I don’t necessarily agree everyone needs it).

If you’ve looked at life insurance, have you considered this option? We haven’t purchased life insurance yet and while this option is intriguing, I think I’d pass on it when the time comes. I’m curious to hear your thoughts on it.

(Photo: buttepubliclibrary)

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50 Responses to “What is Return of Premium Life Insurance?”

  1. Shirley says:

    I did buy cancer health insurance for my husband (his family has a history of cancer) with a return-of-premium at ten years.

    Ten years and one month later we received a check for $3,000+ without even contacting the company. We needed the peace of mind more than we needed the interest on those premiums and we most likely wouldn’t have saved that money anyway.

  2. I have not looked at this, but consider how insurance companies operate.

    I can virtually guarantee that if you invested the ‘extra premiums’ at a reasonable rate of return – at the end of the term, you would have more money than the insurance company is going to pay.

    How else could they do this? It may not be a real scam, but I’m sure it’s a very bad deal for the insured person.

    • Rick says:

      I think the insurance companies are also banking on the fact that a large percentage of term life polices never reach full term before being cancelled due to lack of payment. If you can collect a 20-50% premium while the policy is in force why wouldn’t you?

    • WKCS says:

      Mark- what would it matter if you could invest the money for 30 yrs instead of buying term and you died tomorrow, and you’re wife/loved ones needed money now, not 30 yrs from now???? how are you going to invest for 30 yrs if you’re dead? good planning. some of you are missing the point…term or any life isurance is PROTECTION first. plus, there is NO WAY you’re going to have more money or anything close at the end of 20/30 yrs by investing a few hundred $$ a year, if you buy term. the focus should be on the planning in relation to your own personal goals and needs, not “well, should i invest the money or buy term?” that is so ridiculous to hear. if you planned with a professional, that question answers itself. what if you’re dead????? pretty sure your family, if they rely on you, would think your plan wasn’t so well thought out. one more thing for those who think it’s wrong for insurance companies to make money… how else would they pay out claims???? we give our money to all kinds of different companies who use it to expand and grow bigger, that is a good thing…

      • Jeff says:

        sounds like your an agent. Or at least trying to feel better about an insurance company getting your money month after month for years.

        You lived how many years before you even thought about buying life insurance and you were fine. I agree with investing the money and paying attention to what your doing? Sure life happens, but most policies don’t even pay out.

        It’s a scare tactic of the unknown future, but you’ve been fine so far.

        Practice preventive health.

    • Greg says:

      Yes, the insurance companies plan to make a spread on the investment but its generally win-win for both parties. Insurance companies can hire better money managers than you or me or our financial advisors so they can still give an attractive return to us, virtually risk free (your investments are not guaranteed to make that “attractive return” you speak of), while keeping a small spread as profit.

    • Mr. J says:

      Really? Yeah, I guess you are right over 20 years you might save a buck or two. geez. The difference is the insurance companies have hundreds of millions of dollars to invest of clients money that pay the premiums for the life insurance and extra for the ROP. They invest it a interest rates that we could never get. As an example lets assume your term life policy was $100 a month and the added ROP premium was an extra $50 a month. At 12 months that would be $600 at .05% interest, that would be a whopping $3 annually that you could have earned on that money. Multiply that by 20 years. WOW! Sixty bucks. Now compare that to getting back $100 per month plus the ROP (which is also returned) that is $150 x 12 = $1,800.00 annually times 20 years = $36,000.00. Yeah, I would much rather save $60.00 than $36,000. Glad you cleared that up and also how insurance companies are out to scam everyone. Not to mention if you died anytime during this 20 year term your family would receive a huge death benefit. Money to educate your children hopefully focusing on math and investing.

    • Greg says:

      Mark,

      Where do you bank where small amounts of money can bring such large returns? We are probably talking about $30 a month in premiums for cancer insurance plans that could pay 10′s of thousands in supplemental benefits. Plus, 100% of your premiums returned after 10 years, minus any claims you were paid, more than likely. Who cares if the insurance company makes money. Yes, they are in the business to make money. Duh! My mother had a cancer policy without return of premium. She received over $50,000 in supplemental benefits before the plan maxed out. You can’t imagine the expenses that are not even associated with the disease itself. Her total investment for the cancer policy? Less than $900. She had a great hospitalization group plan that still had gaps in the coverage. Without that cancer plan, she would have went bankrupt.

    • Bob Williams says:

      Mark, how can it possibly be ‘maybe not a real scam’ and a ‘very bad deal for the insured person’ when he/she can potentially collect thousands and thousands of dollars if he/she contracts cancer but get all his/her money back if he doesn’t? What part of this program don’t you like? The protection if you need it or all your money back if you don’t? Bob

  3. Michael Lewis says:

    My wife and I have had a ROP policy for a couple of years now and am glad that we went with it. The annual policy when I got it at age 30 was $620 for a $500K death benefit. A 30-year term policy would have been around $400.

    I know what I could have gotten through investing at a “reasonable rate of return” may have been higher. I am also fully aware that this is basically a 30-year CD paying at 0%.

    However, the bottom line is that when I turn 60 and want to be retiring I’m getting $18,600 back to me. Not a bad thing. I see it as forced savings if you outlive the benefit.

  4. Micheal,

    ‘Forced savings’ is good.
    Voluntarily accepting 0% is not.

    However, if you would be incapable of saving the money on your own, you are entitled to give the insurance company free use of your money for 30 years. There ought to be a better way. IRA? 401k?

    One minor point: You are paying $220 per month extra for 30 years. Without interest, that’s $79,000. Why is the return of $18,600 acceptable?

    You have this policy for ‘a few years.’ Ask your agent to explain why it’s not a good idea to dump the policy and get term insurance instead. Saving the cash difference. Then when that agent admits he/she cheated you, dump the agent and get term insurance elsewhere.

    MArk

    • Michael says:

      Mark, you’re missing a huge point. (by the way I’m not an agent). You are missing 2 very important points which makes this a GREAT product, but then again, not all products are right for everyone. I crack up laughing when people bash insurance because I have NEVER heard of ANYONE REFUSING an insurance claim check, would you?

      1- when figuring your “better to get the interest” equation above you’re assuming the person LIVES the entire 30 years! What if they die in 5. Their investment didn’t have any time to build!

      2- when getting ROP term your getting the ENTIRE amount back and NOT JUST the interest gain on the difference. 0% interest with 100% return of premium vs. some small interest rate on the difference that a bank will give you adds up to pennies. Getting it ALL back at 0% works out better economically because in your example, the person still LOSES the premium on the term policy!

      Michael D.

      • MikeR says:

        I looked into the Return of Premium Life Insurance.

        For me it didn’t make financial sense.

        I was able to get a 30 year term for $29 per month. ($10,440 total cost)

        The same $500k 30 yr Return on Premium would have been $109 per month. ($39,240 back)

        I don’t know why they quoted me so much higher.

        If my family uses it, either way they get $500k.

        However… in the mean time I’m saving $80 per month.

        So 1st year = $960 each year I am going to save that. – $28,800

        Now I can cancel/change my policy without forfeiting extra money. I can also invest that money and if I can make 4% per year (VERY TOUGH in this economy for guaranteed return) then I will come out WAY ahead.

        I just like having the extra money each week instead of them holding it. But hey, some people like paying extra taxes each week and getting a bigger return in their taxes too.

        To each their own. I like having my money and paying off anything that charges interest (like my mortgage).

  5. Philip says:

    I looked into this before and the annual return was somewhere around 5%, or just barely beating inflation. From a rational perspective, it is just as bad (maybe not quite so) as whole life insurance. In my opinion, insurance should be bought for insurance, not investing. Over the 10+ years an “armchair” investor using index funds can achieve 8-12% annualized, easily beating the ROP return.

    I think the “forced savings” argument is a red herring for financial laziness, just like increasing tax withholding so you get a bigger refund. The insurance company (or Uncle Sam in the tax example) is making money off your lack of discpline. It’s just as easy to setup automatic payroll deductions to an index fund equal to the difference between standard and ROP premiums.

    • Greg says:

      I don’t know what world you’re living in but 5% is waaayyyy above inflation these days and is well above what the S&P 500, most mutual funds, your 401k…etc, etc have done in the last 5-10 years. You’re not living in the 80s anymore buddy. No one is making 8-12% per year anymore. Plus, you pay taxes on the return you make on your own investments. You didn’t pay taxes on any of the interest that the insurance company used to provide your insurance. ROP is a good deal for most people not named Warren Buffet.

  6. Michael Lewis says:

    Mark-
    First, a math clarification: the amounts I referenced are ANNUAL payments. So the difference is $220 or so per year or $6,600 over 30 years.

    I actually spent a lot of time researching life insurance 2 years ago and simply felt that given my health history and family history I would likely outlive a 30-year policy and, as Jim points out, paying that amount each year to get nothing after 30 was going to “bother” me.

    Whole life and variable life policies did not appeal because of their outrageous fees. But on the other end I didn’t want to write off several hundred dollars each year knowing that, God forbid, me and my family would not see a dime of it. ROP met me quite nicely in the middle.

    I have plenty of other investment vehicles (Roth, 401k, 457, cash-balance, common stock and funds) with varying tax consequences. So I’m not losing sleep over a tax-free benefit when I’m looking at retirement in 30 years.

    Of course my logic is torn asunder if I die before the 30-year period. But gosh darn it, I plan on chasing women around in South America in my 60′s and I’ll need that money to do it!

    • Michael says:

      Like you said here, you have a “significant savings plans”. Most don’t and you shouldn’t preach talk negatively about a product that I’ve personally seen help families after tragedy strikes.

      You appear to be single considering you’re going to be chasing women in your 60′s. That’s sad, I’d rather have a family and continuous love.

      For a person married with kids, how would it be for your wife telling your 8 year old, daddy was cheap and thought it was better to get us 5% interest instead of a $500,000 life policy. Just sad for us that he got into that car crash, cancer, stroke, accident, roof collapse, drive by random shooting, whatever the cause of death – accidents, illness and injury plaster the news everyday!

      The first thing people should do is get a term insurance policy to cover their debts, second a final expense policy to cover funeral. If their budget will allow, take on the ROP option to the term for a better return and hedge bets over the long run. Third, they invest money. Protect and SECURE your family first. If more people did, so many foreclosures wouldn’t happen when a loved one dies!

      MOre people should think before they post negative about insurance. I personally know how the unexpected can help a family when the person who dies is healthy as a tank. Shut your mouth and stop diswading people against a product that could help them!

      • Jeff says:

        If you invested your money for each kid that you have when they were born or even now, than by the time they were older they would be way ahead of the game. Your not the only one that could have investments. Its a scare tactic that seems to work on a lot of people. Sure you don’t know what life can bring you, but your ok so far. Don’t bet on death, bet on life.

  7. Laura says:

    I went with this myself. A guaranteed, tax-free 5% is not bad.

  8. Scott says:

    Jim, maybe you should clarify that TERM life insurance sucks. Universal life insurance is more like an investment and you can withdraw on it if you really need it for something big that comes up in life.

  9. CK says:

    “If you think outliving your plan will bother you”

    Count me in as one of the people who won’t be upset to outlive their life ins. policy.

    • Chris says:

      Ask anyone who ever lost a loved one and received a payout. Most would give it back and then some in a heartbeat.

  10. Kirk says:

    I haven’t bought life insurance either. My wife is actually set against it, it’s like putting our trust in those bozos who got us into these messes to begin with. Why not just set up an automatic investment plan?

    This week my mortgage company sent yet another life insurance to pay our mortgage in case I die. It’s been 2 years now since we bought, so we thought we’d seen the last of these a year ago. This one was an interesting read though – they won’t pay out if I was driving, being driven, shot by a gun, riding my bicycle, (doing the general skydiving, parasailing etc), smoking, any injury inflicted upon myself or by another 3rd party… so basically they’ll pay out if I die peacefully in my sleep, unless they can prove that some 3rd party is responsible for that and they shouldn’t have to pay.

    Insurance companies primarily exist to make money – so in the long run even if they can pay out – it’s only because someone else gets screwed over. But each person has to have this talk with their family and decide what’s best for them.

    • Greg says:

      Every company in the world (capitalist world, I guess) exists to make money, Kirk. Unless they don’t, then they wouldn’t last long. The margins are lower than most products you buy too. Do you think your shoes or car cost anywhere near what you paid for it? Does that mean the car company is screwing you?

      The benefit of protecting your families financial future in the event of tragedy is well worth the cost for most people. If it’s not to you, don’t buy it. Just like you don’t have to buy that $100 pair of shoes that cost $10 in material and labor.

  11. freeby50 says:

    Return on premium policies cost significantly more than term policies. The insurance company just holds on to your money for years and makes interest off it then gives you back the principal. You can do better investing your money on your own.

  12. Hm. It’s an interesting proposition.

    While you could, in theory, invest the difference between the standard premium and the ROP premium, two questions arise:

    a) Would you, really?
    b) If you did, would you be ahead?

    Let’s say, for the sake of argument, a standard term life policy was $30 a month, or $360 a year. An ROP then might be, say, $460 a year, giving you a difference of $100 a year. At 20-something, you buy a 30-year policy.

    With the standard policy, depositing $100 a month in an instrument that returns 6 percent will leave you with $100,451.50 after 30 years. During that period, you’ve shelled out $10,800 to the insurance company. The difference is $89,651.50 in your favor.

    With the ROP policy, you get $13,800 back after 30 years. That is $75,851.50 less than you would have if you had saved the extra $100 a month faithfully, year in and year out.

    Meanwhile, the insurance company has been investing your $460 a month. At the end of your 30-year insurance contract, it has 462,076.91, assuming it also has invested at 6 percent. It now returns $13,800 to you, and it comes out ahead by $448,276.91.

    Such a deal!

    • Laura says:

      Maybe my math is wrong, but if you don’t do the ROP and invest $100 a year for 20 years, then you’ll have $6325.54 at the end of the 20 years @10%.

      If you do the ROP for 20 years, you will get $9199.20 back.

      So do the 20-year term. I’m using this person’s numbers, but when I did mine (I don’t remember what they were), the results were similar.

      • vincie says:

        i think “funny about money”‘s math is not right, annual difference of 100 dollars. (annual is the operative term, not monthly, so 100 x 30 years is 3000 x 6% annual return = roughly 5400 give or take.

  13. Joe28 says:

    ROP is not really essential in buying life insurance. If you want to invest, go buy a house. You want peace of mind, then buy a life insurance that you can afford. Most of us do think that life insurance is just a waste of money until our life ends. Then you become a burden to others. Its great if you already set aside a liquid asset to use for your final expense. If not, Uncle Sam will pay for it from our taxes. We invest on everything except ourselves. If you want ROP, then pay up. There is nothing free in business. That is why they say “business is business”.

  14. eric says:

    Interesting idea but like you, I think I would pass on it. At least it’s another option though. Btw, I totally lol @ the “but you’re dead” sentiment. Morbidly hilarious. :D

  15. thomas says:

    Insurance companies will continue to come up with ways to swindle customers with sneaky new products or renaming of old ones. Term and save.

  16. layne says:

    I am amazed at how little most of you people who respond here really understand about insurance and finance. I have read 2 or maybe 3 comments that are reasonable. I give those people credit for being reasonable and thinking of their families. The rest of the responders have their heads somewhere and unable to see reality. Those of you against insurance should understand that more homes have been lost to death or disability of the breadwinner than have been lost to fire. I think you have never really looked at the reason for having insurance, for your home, car, life, health, etc. The purpose of insurance is to protect you against the losses that will devastate you financially. Of course insurance companies need to make money. What company stays in business and does not make a profit? Maybe you don’t care how much money an insurance company makes, but if you have a claim, you would scream louder than a banshee if they did not have money to pay your claim. You do not care how many other cliams they have to pay, even if it would be billions of dollars, but they better have enough to pay YOUR claim. How do you think they have the financial reserves to pay the billions of dollars in claims when a hurricane comes ashore? Would you rather pay $1,000 or $2,000 a year for homeowner’s insurance and never need it, but always know that if you had a claim, it will be covered? Or would you prefer to have no insurance and pay off the mortgage of a destroyed house, and then scrape up money to go buy another home?
    As far as insurance companies cheating people, I will not say that they never do, but I do believe it is very rare, especially by reputable companies. Are you sure there were no exclusions in the policy that you ignored? An insurance policy is a legal written contract, and the inusurance company is very clear about what they cover and what they DO NOT COVER. You need to know what your policy says.
    Funny about Money says:Let’s say, for the sake of argument, a standard term life policy was $30 a month, or $360 a year. An ROP then might be, say, $460 a year, giving you a difference of $100 a year. At 20-something, you buy a 30-year policy. (YEARLY PREMIUM HERE) Then says:

    Meanwhile, the insurance company has been investing your $460 a month. (NOW IT IS MONTHLY PREMIUM) At the end of your 30-year insurance contract, it has 462,076.91, assuming it also has invested at 6 percent. It now returns $13,800 to you, and it comes out ahead by $448,276.91.

    Such a deal!

    I think you should keep straight whether you are talking about yearly premiums or monthly premiums.
    I am wondering how many joints or hits of cocaine you had before you wrote your piece.
    You talk about getting a 6% return on an investment. Please tell me where you can go and get a guaranteed 6% return today. Also, did you allow for the taxes you have to pay each year on your gain? Or is this in a 401K or IRA that you cannot withdraw without penalty before age 59 1/2?
    In case you are wondering, the average rate on CD’s now is a little over 1%. There are higher rates, but you have to look for them, and even then, 2%-2.3% is the highest I have seen, and I have searched the net. The insurance company says exactly what a person will receive at the end of the policy, so you have to be able to match it, apples to apples.
    Kirk talks about his wife being against life insurance. She has not opened her eyes to what life will be like, if they have children and he should die. Makes me think of a letter a widow wrote to Ann Landers many years ago. She said that her husband wanted to get life insurance in case something happened to him. She was against it because he was in perfect health, and she would rather spend the money on a new tv. Well, he died, and then she had to get a job. The only thing she could find was working as a waitress in a restaurant and did not know how she was going to be able to keep the house and pay for groceries, utilities, and everything else.
    Another letter to Ann Landers told about a woman who wanted her husband to get life insurance, but he said it was a waste of money. It was peanuts. After he died, (her words) she learned it was not peanuts. It was peanut butter and hamburger, and paid utilities and mortgage payments, and braces for the kids.
    A widows study was done, and 97% of widows said they wish there would have been more life insurance. I will be watching here again to see how many people make comments and sound so uneducated and narrow minded.

    • vincie says:

      well said, layne.

      me myself life insurance is just to help me better sleep at night, accidents happen, and i only want to provide the best options for my family whether it’d be (me) alive and providing it for them, or me dead accidentally.

  17. Anonymous says:

    I am a CFA/MBA/CFP. I deal with hgh net worth individuals. Mostly business owners from 2-2500 employees.
    I have offer/presented life insurance as well for 35 years. Not once have I sold a contract. Dealing with people that have built fortunes they either buy insurance to presevere or protect. Every great enterprice is build on strong foundations. Insurance should be used as a foundation. They all buy insurance-everyone. They buy term for short term needs and for families and long term obligations they buy whole life type products. They buy from mutual companies(not wall street driven stock companies but policy holder owned). I am pushing them into Credit Unions (policy holder owned. The mutual insurance and banks are regulated (not deregulated) and are required to maintain higher reserves. They also are restricted in their investments and were not involved in the Scam(housing derivatives.) As this financial melt-down has proven you cannot relay on Wall Street.
    I have delivered over $32 million in cash reserves over 3 years to these policyholders (employer and employees) who have had financial hard times. In 35 years I have delivered $56 million in death claims and $11 million in pre-death(severe illness) checks to easy the burden for caregivers(family). Not one has has been worried about the rate of return when I hand (every check I have hand delivered) them the check. I am ususally the one they call first when a crisis arises-not as their stock broker, banker, or lawyer-but as the guy who spoke about all their needs from cradle to grave.
    If you build your house on sand-you sit/wait/worry about the next storm. Take that valuable time and make more money and diverse your savings. Wall Street and the government cannot be trusted.

  18. WKCS says:

    To Jim Wang: life insurance would not suck to anyone who has lost a loved one and the income they were providing and received the death benefit from having the proper life insurance policy in place. it does have a purpose. especially if you rely on someone’s income or they rely on yours. life insurance keeps the other person/family “in their world.” as we age, life insurance becomes more important to us, not bc we need it, bc we now want it. most want to leave something behind or help with the grandkids education; we begin to realize that we’re no longer going to be around, but it would be nice to be remembered and leave something behind. in any case, it sounds like you should sit down with a financial planner and start…planning. what are your goals? what is important to you? do you think your life is going to change in the next 10, 20, 30 years? you want to ensure your plan is flexible to accomidate life’s changes. term is great, it has a purpose. it’s usually where people begin, the foundation of one’s financial plan in case “the worst happens”. is the type of term you might be looking at convertible in case you want the policy there when (not if) you die? term is dirt cheap, provides peace of mind and protects your loved ones. many would not call that a “waste of money.” you had that protection all those years. also, there are reasons for other types of life insurance, like those that build cash value. there are tax advantages to this and they are appropriate for the right person. this subject of life isurance is not a “do this” “don’t do this” topic by any means. you can’t say for example term is a waste of money if i want the protection until my kids are out of college and, i want funds there in case something happens to me. discovering your goals/needs/financial situation and what’s important to you will decide for itself what option is best for you and/or your family. by not protecting your future income with the type of life insurance that fits your needs/goals is financially irresponsible. especially considering how affordable it is. we pay for all types of insurance that we never use, but there is one thing for certain, we are all going to die one day. im shocked weather to buy or not to buy is even a debate for some people. and you’re right, there is no financial comparison that will help decide which type of policy to choose. it’s not about ROP or level term or whole or VUL. it’s about what is right for your plan and your families goals/needs. are you married? would it affect your wife/family financially if you died tomorrow? if your answer is yes, go see a financial planner and stop worrying about ROP. you’ve got much bigger things to worry about…like are you insurable?

  19. billy d. says:

    am going through this right now on a ROT policy one of my clients has that is 3 years old. First and foremost I am a firm believer in the new ul guaranteed death benifit contracts. Can’t outlive them and unlike most whole life policies there are not stratosperic premiums to fund it. To me most W L polies are slow decreasing term policies as in 90% of the policies the death benifit is level and the cash value is treated as part of the DB.

    Back to ROT. Have an investment advisor that is telling this client that the ROT is no good.
    I firmly believe that acurarial tables give the companies good indication that a staggering number of people that have preferred plus ratings will outlive there term polcies. His suggestion is to buy a 20 year term policy where they will save appoximately $50.00 a month. That Extra $50.00 a month will be worth $38,000.00 to the client in 17 years and I would say the odds are close to 95-100% that the insured will still be alive. Taking future value factors into play he would need a guaranteed return of over 14% to approach the $38,000.00 If you stick in the taxs with conventional investments the return needed is higher. Oh Yes these individuals also have a gdbul. which guarantees them coverage to age 121

  20. T says:

    I agree with Layne and Anonymous. I am an independent investment advisor and have regularly presented all types of life insurance to clients. Life insurance is a valuable tool for estate planning and protection for those financially dependent on the earnings ability of the insured. Everyone has a different need and thus there is no universal solution or answer concerning what is considered a suitable insurance policy. Insurance was designed to fulfill a specific need, unique to every individual and family.

    In regards to the debate about buying a more affordable policy (aka term) and investing the savings into an investment vehicle that could generate a higher rate of return over time, there are too many unknown variables to assume to make this type of declaritive statement.

    Yes, theoretically, you could average 6-10% of interest over time, thus generating more income on your own but this depends entirely on the sequence of returns of your investments. Look at various Monte Carlo simulations and you will see that it truly is impossible to determine an average rate of return. Consequently, because of this inability to predict, one cannot make a generalization whatsoever.

    Insurance was designed for peace of mind and protection. ROP is an interesting concept and although I have not recommended it to any client, that does not mean it does not have a place in the insurance marketplace.

  21. JJW says:

    I guess I can understand why people with families might want life insurance. For me there is no sense to it. I have plenty of friends but I am single, I have no kids and I don’t plan on ever having any. I have a total of 3 people in my family and 2 of them are over 80 years old. Why would I want life insurance? Who would I make the beneficiary? Why would I care what happens after I die? Paying for a policy would be a total waste of money. I resent insurance advertising and sales pitches that say everyone needs life insurance. Ummm, no, they really don’t.

    I’ve had nothing but bad luck with insurance companies all my life including health, auto & home. I pay and pay and pay money every month for years on a policy and never need it. Then when something does happen, the insurance company weasels out of any responsibility by saying “we don’t cover that.” No matter what it is, all they have to do is say “we don’t cover that” and they get out of paying anything to anyone.

    Insurance isn’t protection, it’s a con game and a racket. Insurance companies take in literally trillions of dollars from policy holders yet they only pay out 1% in compensations. It’s unbelievable how state and local governments make it a law for people to buy insurance. Can you imagine the government making it a law that everyone had to buy MacDonald’s hamburgers? I’m sure MacDonald’s wouldn’t mind. Neither do the insurance companies.

    It is amazing how pro-insurance brainwashed people are today. They think because they pay for a policy they have piece of mind and protection. They don’t. They’re just making deposits into someone else’s bank account. No thanks, I’ll take my chances with fate. If I’m wiped out financially by some disaster, the government will bail me out anyway. so, why pay for insurance? I’ll let all the suckers do that for me.

    • Nick says:

      People like you are the reason our country is in the mess it’s in. Own up and take some responsibility. If you don’t want life insurance, thats fine with everyone, but saying that “all” insurance is a racket is extremely short-sighted. Take “car-insurance” for example. Next time you’re hit by someone who doesn’t carry insurance have fun dealing with the cost of repairs on your own. Or worse yet, still owing money on your totaled car and having to buy another on top of that. If you don’t have health insurance, that means when you get sick and run up hospital bills everyone else has to “bail you out” Show some responsibility and take accountability for life and actions and how they affect others. One final note, you show your lack of education when you say that insurance companies payout claims of “1%” Look up the P&L of any public insurance company and you may be surprised to find that their margins are a little worse than 99%!

  22. WJJ says:

    I think the insurance companies that market ROP insurance is hoping the client is not smart enough to do the math. For instance – ROP insurance cost 30% or three times as much as traditional term. So for the sake of argument less say a traditional 30 year term policy cost $125 per month and the 30 year ROP policy cost $375 ($125 x 3) If the company invest the difference of $250 over the 30 years and average a 10% return, they will make almost $600,000, so of course they will be glad to give back the $135,000 of premiums. Their profit is $465,000. Why not purchase the $125 traditional term policy, Invest the $250 in a diversified mutual fund yourself and keep the $600,000 for your family instead of making the insurance company wealthy. At the end of the 30 years, your mortgage should be almost paid if not completely paid, your children should be grown and on their own and you shouldn’t have a big pile of debt. Therefore, you shouldn’t need a heck of a lot of insurance at that time; However if you do out live the 30 year policy you will have/need the $600,000. Which would you rather have $135,000 return of premium or $600,000 cash? If the investment average a 8% return it would still be around $390,000 return which still beats $135,000 return of premium.

    • Greg says:

      WJJ

      You have really shown your ignorance here today. Great job. Back to mowing grass for you. On a $125 premium, assuming a 30% increase for the return of premium, would increase the premium $37.50 per month. Now, Mr. Math wiz, let’s start again only with $37.50 @ .5%. Because you will not have anywhere near enough money to invest if you are concerned about $37.50. You are looking at least investing 10 grand or more to even begin thinking about 3 – 3.5% return on your money. Which with your mathmatical abilities you do not and probably never will have $10,000 ever. Why do I waist my time with this?

  23. pavjason says:

    What about having to pay taxes on the ROP after the term is up? What tax rate would this “income” fall under?

    • Bob Williams says:

      pavjason, no taxes on ROP returns. It’s not ‘income’. It’s simply insurance premiums being returned to a policy holder after the term is up and those premiums were paid with after-tax dollars. Bob

  24. Leah says:

    I would like to first state I am an agent. I do believe strongly in life insurance. When I got my license I was having a horrible time making any sale. So my twin brother bought a pity policy, he really didn’t think he needed it, we where 22. He had some kids, but was doing ok for himself. His wife was pregnant with what we thought would be his fifth kid but turned out to be fifth and six child. Unfortunately he never got to see his girls, he died 4 months before they where born. That measely 20 dollar life policy is now supporting his wife and kids. He was my first sale, and my most important. Before you bash an insurance company, think of it this way, my brothre had the policy less than a year, only about 7 months, so they collected only a years annual premium which they refunded 60 dollars of when he died, in addition to paying out the entire million dollar policy.300k to his wife, and 100k to each of his children. 100k to our mom.So yeah, if you outlive your term with or without the ROP it may suck. You may feel a little cheated, but every day you hear about someone dying and the first thing you wonder who is footing the bill. If my brother hadn’t had life insurance his wife would not have had the money to bury him, none of us had that kind of money on hand. So while you guys are talking about investments and insurance companies ripping people off. Take a moment and think about your kid having a car wash or going around with a collection can to bury you, and feel a little shame cause that is the reality investing and saving instead of having insurance. Even if you saved the difference, it wont pay for college, it wont buy your kid her first car, and it wont keep your wife from having to work two or three jobs to earn what you did, cause she was a housewife and had no experience or skills.

    As a side note: All the talk of insurance companies causing the economic melt down should really check your sources, stop passing the blame, no one made anyone buy houses they knew they couldn’t afford, no one made you spend money you didn’t have on credit cards, cars, and toys you didn’t need and couldn’t afford.


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