How I got a $500,000 life insurance policy for free. (I'm not selling, I'm just advising.)

Facts: The problem with Life Insurance is that it's a lose-lose situation. You lose either way. If you die, you collect the money, but you lose because your dead. If you don't die, you don't any money, and you feel like you lose also, because it feels like you wasted all your money on the premiums.

The policy I have is called a term-policy with a (ROP) return on premium rider. It's a $500,000 policy that I got at age 33. I pay about $70.00 a month. I did say it's a free policy, and here's the reason. If I don't die in 30 years, I actually get all the premium I put into my policy back. (Of coarse they don't pay interest, but it's still good.) However, if I do die, then my family gets the $500,000.

I used to be a life insurance agent for about 1 year. I sold variable, whole life, and term. All my co-workers never told the real truth. So whenever you talk to a life insurance agent, be extra careful. Even my co-workers that had ethics, didn't tell the truth. It wasn't because they were lying, it was because their supervisor they trained them didn't tell them the truth. So they were just repeating the same lie the supervisor was telling them.

My company sold Term Policy, Variable Life, and Whole Life. The only one I liked was the one that my company did not sell. That's the term policy with a Return on Premium rider. Here's my reason for hating these 3 policies.

Variable - Tied to much into the stock market. If the stock market does poorly, you are risking losing your account. A life insurance policy is suppose to be a guarantee and not a risk. That's the logic of life insurance, a guarantee amount of money for your family. Another problem is that all agent that I know of try to forecast the stock market at 10 to 12 percent appreciation a year. If you tell your agent to be very conservative, and forecast it at 8%, you'll be very surprised. Actually, I'll be surprised if your agent will show you the results. None of my co-worker ever did.

Whole Life - It's nice because it's a guarantee. However, when you are paying thousands more then a term per month, it's just to expensive.

Term - If you don't die, if feels like such a waste of money.

OPINION - When buying a Term Policy with a return on premium rider, don't worry about the monthly premium. Remember, you will get your premium back anyway if you don't die. Look for the 30 year policy, because that's the most coverage. The main thing you want to look for is a strong company that you know will be around in 30 years. Also, if you decide to get 2 polices. Try to get it from 2 different companys. Just in case one fold, the other one might still be around. Even if a company does fold, it will be guaranteed through some program automatically. However, it's still a hassle. So make sure you look for a reputable company.

Reply to
facts2opinion
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You are paying about twice the premium (or getting half the benefit) of a normal term policy. I am now 44 and justy made my annual payment of $620 for a $1M term policy. The ROP you describe sounds like a variant of whole life, as there's some investment involved to pay back after the term ends. Term is not lose-lose. If I die, my family can pay the mortgage, go to school, etc. JOE

Reply to
joetaxpayer

Its only lose-lose in the sense that you don't care about the well- being of your heirs. Insurance is rarely, if ever, a wise investment and/or cash vehicle for the purchaser. Given a statistically average life expectancy, the return on insurance is usually less than 2% which will not even keep up with inflation nor earn a "risk-free" ROR.

Life insurance hedges the risk that you die PREMATURELY and leave your family with a financial burden. If your concern is only for yourself, or you have no heirs that you care for, then I suggest you surrender/ lapse your policy.

As Joe said, the ROP rider on insurance policy increases the overall premium. I ran a quick check on ING 30 year term. 50 y/o Male with standard health rating would pay $8790 annually for $1M of 30 year ROP term. The exact same man would only pay $7240 for $1M non-ROP. A difference of $1550 annually. That difference @ 10% a year would yield $280,462 after 30 years. Once taxed at CG rates, it would be worth about $255k. The ROP method will yield $263,700 (tax-free). The ROP method generates about 10% more overall return in a 30 year period.

So how does the insurance company make a profit??? 98% of the time insurance companies don't return any (or only a small portion) of the premium. Term policies are notoriously surrendered, lapsed, replaced, or converted before maturity. The NAIC estimates that as little as 2% of term insurance policies are ever paid out. That's why it is so much cheaper than universal or whole life. Budget constraints, family changes, death, competing policies, and numerous other life changes cause us to replace or lapse our coverage.

All-in-all ROP is a sound principle that is rarely ever seen through to the end. Consider the limitations it places on your future options before charging ahead.

Reply to
kastnna

pardon my math. $255k is only 3-4% less than $263k. That makes the ROP even less valuable than I originally stated.

Reply to
kastnna

Typical statement by a person who does NOT understand ` Life Insurance. a) if YOU die YOU do NOT collect ! ! ! ! ! b) the premium that you paid was for INSURANCE. The Company asuumed the RISK. Yopu had Peace of Mind for the 30 year period. Do you have FIRE Insurance on your home. How many times has it burned down?? How about the Risk of Hurricane??

The "ROP" is invariably almost as much as the base premium. If you put that same amount of money into a mutual fund, you would get baxck MORE than the premiums that YOU are paying.

Plus , in most policies, if you cancel your policy, or miss "ONE PREMIUM", prior to that 30 years, you get back NOTHING.....

How about you, did YOU tell the truth?????????????????

A great deal of merit in what you say here.

You IGNORE the fact that has a premium that remains CONSTANT for the balance of your life. Term has a termination date!!!!!! You just might have a need for insurance beyond that date.

You also IGNORE the non-Forfeiture values built into a Whole Life Contract. If you miss a premium, or decide NOT to pay premiums, your Life Insurance REMAINS IN-FORCE.

The do DIE ! ! !, so that someone will collect.

Cal Lester CLU

Reply to
Cal

There you have it. That is the absolute TRUTH. Term Insurance is the Second BEST type of Policy for a Company to sell. The payout is miniscule. btw, the best is Disability.

Reply to
Cal

Here's some articles that I found on google. (keyword: term insurance with return on premium rider review). Remember if you are purchasing, don't worry about the price, you will get the premium refunded at the end of the policy. Shop for a strong, reputable company.

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Reply to
facts2opinion

JOE, You might be right, but there's a couple of things I need to know before we are comparing apples to apples.

  1. Is your policy a 30 year policy?
  2. How old were you when you got your policy?
  3. What is the name of your insurance company?

I remember when I compared my regular Term Insurance verse the Term with ROP rider it wasn't that much of a price difference. One thing for sure is I would rather have people buy any type of life insurance, then no life insurance at all. I just had 2 friends that had family members die, and they had to borrow money just for the funeral.

My original goal of writing this is to get people who are against buying life insurance to consider the Term with a ROP rider (which would ultimately refund all the premiums if the person lives). After all, a person has over a 90% chance of living after the insurance expires.

To what I understand the term with the ROP riders is the worst product for the life insurance company as in profits. However, it's the best deal for consumers. AS I STATED BEFORE, THE LIFE INSURANCE COMPANY I WORKED FOR DIDN'T EVEN SELL THE PRODUCT. I ACTUALLY WENT TO A COMPETITOR TO PURCHASE THE PRODUCT.

Stan ps Again, I'm proud of you and I'm sure your family is for making sure they are taken care of.

Reply to
facts2opinion

It may feel that way, but it wasn't - during the term of the insurance, it was providing protection. Presumably, when on buys term, one buys it with an expectation of no longer needing that protection after some time period - ie. dependents grow up, other savings is built, etc.

You don't "get back" that opportunity cost and the time-value of the money you paid.

Making up numbers completely randomly here: Suppose regular term was $40/mo for a policy, for 20yrs and return-on-premium was $70/mo. for that same 20 yrs. Over the course of 20 yrs, you paid $70/mo so that at the end of the 20 yrs, you'd get $16800.

What if you'd taken that $30 each month and invested it? Suppose a balanced fund (there's one which averaged 8.5% since 1929!) gets you 8%/yr on average: you have $17788.

The return-of-premium may or make not make sense - it depends on (a) the rate of return you get on the difference, assuming you invest it and (b) the difference - and (c) the time frame.

So - what did your return-of-premium insurance cost you? and how much was plain term without the rider?

Reply to
BreadWithSpam

Completely wrong. Worry about the price - and especially on the *difference* between that price and comparable non-return-of-premium term insurance. If the difference is big, it may (very likely is) not a great deal.

Reply to
BreadWithSpam

"don't worry about price, you will get the premium refunded" might be the most foolish thing I have heard yet today. What if the increase in premium causes the policy owner to run out of money at year 5 or year

29? I already stated that the vast majority of people will not get the premium refunded because they won't hold the policy for 30 years. SOME companies now offer sliding scale reimbursement if you surrender prematurely, but the payouts are highly penalized (i.e. after 5 years you recieve nothing and after 25 years you recieve 50%).

Since you're already in the googling mode, try "time value of money". Its a worthwhile concept.

I also did some googling of my own.

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Reply to
kastnna

This is hardly a fact. There are some things that you want to buy, but you don't want to use. Insurance and air bags are two examples. Do you feel you wasted money car insurance because you didn't have a wreck this year? Wasted money on health insurance because you didn't get cancer?

-- Doug

Reply to
Douglas Johnson

snip

Since I'm years into the policy, and it was just a 20yr term, an apples to apples would be to compare the latest available as would a reader of this group. Looking at insure.com, I found 30 yr term policies for $1M ranging from $62.64 to $70.88 for a 30yr old. Since you bought at age 33, let's just assume the term policy cost at $70/mo. This would be about $35 for the same $500K you have. Forget that one would likely get an average return pushing 8-10% (the long term stock market return) and assume 5%. I calculate that $35/mo at 5% for 30 years is $29,129. And $70*360$25200. So, the extra money you are paying vs a straight term policy is being returned to you at a not so great rate. At 8%, it would be $52,000. On the other hand, it's 'forced savings', which is better than buying a weekly latte at Starbucks. I don't see how this can be 'worse' for the insurance company than the straight term, they basically get to borrow your money at 4.2% for 30 years. You can do better on your own. I agree, insurance is important for most people, but a bit of research should help them choose the right policy. JOE

Reply to
joetaxpayer

While I agree with the conclusion, there are a couple of other factors to call out:

The 4.2% rate of return is guaranteed by the insurance company, while the market isn't. Since the term is 30 years, a closer comparison would be the current yield on a 30 year Treasury bond. (When one knows the date that one needs the money, as one does here, a bond with that particular maturity is a good place to invest; also, treasuries give you at least as good a guarantee as the insurance company.) So the 5% rate of return Joe used is a good one - don't assume more without greater risk than the ROP policy provides.

The insurance policy return of principal is tax free, while the bond is federally taxable. Assuming a 25% bracket, the bond's yearly return comes down to the same neighborhood as the insurance company's. Somewhat of a wash.

An extra benefit of having the bond is that you can cash out at any time. Sure, you may lose principal on the bond, but that's nothing compared to the loss you'd have on the ROP policy if you cancelled it in the middle.

Mark Freeland snipped-for-privacy@sbcglobal.net

Reply to
Mark Freeland

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