ROP Policy

[Robert Barney]

Since ROP carries a net negative Real rate of return (because you lose time value of money for 20- or 30-years, And you lose the opportunity cost to do something else with the money), why not just cough up slightly more (compared to ROP not traditional term) and buy whole life so after your 30 years are up if you don't want the death benefit anymore you can cash it in and make out a positive real rate of return (probably +4.5% ish)

Not sure what you mean by "negative real rate of return".

Just ran a $500,000 comparison for 30 year term, and 30 year ROP, for a 35 year old male non-smoker in the best of health.

Best 30 year term premium was SBLI at $435 per year.

Best 30 year with ROP was Reliastar at $905 per year.

According to Compulife's ROP Analysis (copy attached), the effective rate of return on the $27,150 was 3.95%. Certainly not a "negative real rate of return". Factor in the fact that it is 3.95% "after tax", and it's downright respectable in this market.

What whole life product and values would you recommend by comparison?

To see how hard it is to do this analysis, you can watch the video here:

http://www.compulife.net/tutorials/rop_analysis/rop_analysis.htm

 

[WinoBlues]

Since ROP carries a net negative Real rate of return (because you lose time value of money for 20- or 30-years, And you lose the opportunity cost to do something else with the money), why not just cough up slightly more (compared to ROP not traditional term) and buy whole life so after your 30 years are up if you don't want the death benefit anymore you can cash it in and make out a positive real rate of return (probably +4.5% ish)

I would also like to see the comparison. The current ROP pricing makes it easier to compete with a few years ago not so much. I forget who, but someone on here did a nice comparison a while back. I think the snag will be the "cough up slightly more".

Let's use Bob's 35 yr old.

Thanks

 

[lementex]

The comparison would have to be solved by premium and not by face amount, in my opinion, which would immediately draw a disadvantage for the WL policy, since I doubt that premium would buy the same amount of coverage ($500k). I'm just guessing, but I'm curious to see.

Personally I love IUL's and have illustrated them in comparison to ROP in the past, with mixed results (based on age, carrier, riders, and table). It allowed me to give the prospect multiple options, and made it easier for me to get a commitment. Many times my clients would choose the ROP term without blinking.

 

[Robert Barney]

The comparison would have to be solved by premium and not by face amount, in my opinion, which would immediately draw a disadvantage for the WL policy, since I doubt that premium would buy the same amount of coverage ($500k). I'm just guessing, but I'm curious to see.

Lowest price, fully guaranteed, no lapse UL policy for the same 35 year old is Penn Mutual, $2,157.48 per year.

 

[Robert Barney]

Try this analysis for whole life versus term.

 

[lementex]

Try this analysis for whole life versus term.

Just as I thought. Can we see the solve for premium? Im guessing the same premium will purchase about $220-$250k ish

 

[deadhead]

While expensive Liberty Bankers has an interesting product. Called Permaterm 20. All premiums paid in become a paid up policy at end of term. With the 35 M NS example 500k is 1454.1 a yr then becomes a 29,082 paid up policy or permaterm 70/ term to 70 yrs is intersting too 500k 298.31 for 35 yrs then becomes 125,290. Pricey but interesting concepts

 

[Robert Barney]

Just as I thought. Can we see the solve for premium? Im guessing the same premium will purchase about $220-$250k ish

Exactly, half the coverage.

Do you folks sell coverage or premium? When I sold it was all about the coverage. No widow ever asked what kind of life policy her husband had when she got the death benefit check.

 

[Tahoe Ray]

I would also like to see the comparison. The current ROP pricing makes it easier to compete with a few years ago not so much. I forget who, but someone on here did a nice comparison a while back. I think the snag will be the "cough up slightly more".

Let's use Bob's 35 yr old.

Thanks

Since I'm running some WL quotes for an appt tomorrow....

Bob SNT 35yo Male CA, 5k/yr:



Mass Mutual 20pay

Guaranteed CV: 108,200
Non-Guar CV: 147,682
Guaranteed DB: 263,852
Non-Guar DB: 360,129
NG Paid Up DB: 360,129

Mass Mutual Leg 100(results shown in year 20)

Guaranteed CV: 96,038
Non-Guar CV: 138,527
Guaranteed DB: 391,304
Non-Guar DB: 494,917
NG Paid Up DB: 337,805

To be fair, I didn't blend any of these with LISR which would improve the cash...too much work for no comp.

Prudential 20yr ROP

Guaranteed CV: 100,000
Non-Guar CV: 100,000
Guaranteed DB: 1,429,511
Non-Guar DB: 1,429,511
NG Paid Up DB: 284,561 (year 19)

I think that Cincinnati will look even better but I don't have their software handy...

Have at it...advantages to both.

 

[lementex]

Exactly, half the coverage.

Do you folks sell coverage or premium? When I sold it was all about the coverage. No widow ever asked what kind of life policy her husband had when she got the death benefit check.

Personally speaking I sell by premium - its just my style. One of the first questions I ask is, "How much in your budget are you willing to set aside for Life Insurance?" Right away they are committing by naming a number, whatever it is. Then I go from there. Usually I try to sell a policy much higher than that which includes plenty of riders. When they say it's too expensive I start pining off riders until they tell me to stop. Thats just my style, not saying it would work for everyone. And you'd think I had persistency issues but I relatively low chargebacks. When you sell the living benefits its harder for another agent to come behind you and replace you based on price alone. But thats just me. Of course, that was 5 years ago. Im just now getting back into the business after a 5 year hiatus.