ROP Term

[James]

I don't think it is a terrible product. Many people say will buy term and invest the difference but they actually spend the difference. It's just a forced savings for people who are financially irresponsible.

And yes they have to keep it till the end of the term BUT if they don't plan to do that, wouldn't it be much cheaper for them to buy guaranteed renewable term that is NOT a level premium? Much much cheaper in the early years.

Totally agree, in fact many here that denounce ROP on the basis of cost and lapse issues are against shorter term with Renewable feature as it doesn't cover XX amount of years. Rather bizarre the way some use the same issue as a positive and a negative depending upon how it effects what they sell.

 

[Alsky]

I was referring to One Deductible as a solid contract not specifically Assurant. I don't want to spend time chasing hard to place people in health plans that may or may not be all that good. You have other companies and products that are every bit as good as Assurant, its just that I really don't think Health is a life long endeavor for me nor do I want to spend all that much time constantly going over health coverage. Once again Health is very much State by State issue, Assurant isn't the cheapest around here but its in the ballpark for the most part.

The One Deductible plan is a sweet plan. Thanks for your input James.

Al

 

[hazenyc]

I found this Return of premium calculator from QuickQuote.com that allows you to compare the rate of return for a ROP policy.


You can see just what a return of premium policy returns over the entire term. Once again if you do cancel before the premium term, all bets are off.

What the heck? How is there a positive rate of return? Let's say I pay in $2000 a year for 20 years, and then get paid back $40,000. My nominal rate of return is 0% and my real rate of return is negative after you subtract out time value of money and opportunity costs......

 

[smokin goose]

What the heck? How is there a positive rate of return? Let's say I pay in $2000 a year for 20 years, and then get paid back $40,000. My nominal rate of return is 0% and my real rate of return is negative after you subtract out time value of money and opportunity costs......

You realize this thread is 6 years old right?

 

[hazenyc]

You realize this thread is 6 years old right?

You still saw it

 

[smokin goose]

It's because you bumped it. :-)

 

[lementex]

What the heck? How is there a positive rate of return? Let's say I pay in $2000 a year for 20 years, and then get paid back $40,000. My nominal rate of return is 0% and my real rate of return is negative after you subtract out time value of money and opportunity costs......

That used to confuse me, too, until I realized that the rate of return is in reference to the premium difference between a policy with and without ROP, and what you'd have to earn with that difference to equal the same.

If, for example, a 20yr Term policy was (a) $1000yr without ROP, and (b) $1500yr with ROP, if a client chose option (a), how much ROI would that need to generate (after taxes) to equal what the ROP would be at the end of that term. If you choose the ROP, you're getting a check back for $30,000 at the end of year 20. If you dont choose the ROP, then what rate of return would you need on that $500yr extra in savings you didnt spend to equal the same $30,000.

I hope I explained it without confusing you even further

 

[hazenyc]

That used to confuse me, too, until I realized that the rate of return is in reference to the premium difference between a policy with and without ROP, and what you'd have to earn with that difference to equal the same.

If, for example, a 20yr Term policy was (a) $1000yr without ROP, and (b) $1500yr with ROP, if a client chose option (a), how much ROI would that need to generate (after taxes) to equal what the ROP would be at the end of that term. If you choose the ROP, you're getting a check back for $30,000 at the end of year 20. If you dont choose the ROP, then what rate of return would you need on that $500yr extra in savings you didnt spend to equal the same $30,000.

I hope I explained it without confusing you even further

That's just the wrong way to consider it though. That's like saying the return on your (now) used car vs if you leased it...

 

[lementex]

That's just the wrong way to consider it though. That's like saying the return on your (now) used car vs if you leased it...

The wrong way? I don't know if it's right or wrong, I'm just explaining how the math works.

I used to sell a lot of ROP myself a few years ago. A lot of my clients would say, "Well how about I go without the ROP and just invest the difference?". I then would explain how the math worked and let them pick which one they'd rather go with. More often than not, they chose the ROP because, as long as it was affordable, it was a win-win in their eyes. Most people think they are going to live past the term, and it keeps a lot of people buying cheap term because they think theyre throwing the money away. At least with ROP its still a loss (when you consider inflation and opportunity cost), but if you do the math, the loss is mitigated compared to a policy without it.

On top of that, ROP was a great way for me to pitch term. I'd always ask the client what about Term Insurance bothered them, and they always said that they felt they were throwing the money away because odds are they aren't dying in 20-30 years. I'd introduce ROP and it was a great selling tool for me.

/shrug

 

[ccurryUW]

North American Builder IUL 7 would be a much better route. Gives the clients money all there premiums back + interest after 20 years, has the ability to act as a term or a whole life permanent product if you wish to continue it. Rates remain level.