Whatever Happened to ROP Term??
- Thread starter Mark
- Start date
- 1,405
It was too good before, unless you take into account lapse rates. But that's where regulators squeezed the life companies, to take the lapse rates out. This resulted in a price increase. Now, when lapses occur, the companies get a windfall, rather than distributing money back to customers.
Here's a list of companies offering 30 year ROP, that we quote in Compulife:
American-Amicable Life Insurance of TX, Easy Term 30 w/ROP (Simplified)
American National Insurance Company, ANICO Select 30 with ROP
Assurity Life Insurance Company, Term 350 Plus - 30-year Term w/ROP
Assurity Life Insurance Company, Non Med Term 350 - 30 Year Level w/ROP
AAA Life Insurance Company, 30 Year Level Term (with ROP)
American General Life Insurance Company, ROP Select-a-Term - 30 Year
Cincinnati Life Insurance Company, Termsetter ROP 30 Year (w/ROP)
Columbus Life Insurance Company, Nautical Term - 30 Year with ROP
Fidelity Life Association, Rapid Decision Term - 30 Year (w/ROP)
Illinois Mutual Life Insurance Company, 30-Year Term (with ROP)
Independent Order of Foresters, Lifefirst - 30 Year (non-med / w/ROP)
Liberty Life Assurance Company of Boston, Passport 30 Plus with ROP feature
Pruco Life Insurance Company, PruLife Return of Premium Term 30
Pruco Life Insurance Co of New Jersey,PruLife Return of Premium Term 30
ReliaStar Life Insurance Company (ING) A ING ROP Endowment Term - 30 Year
ReliaStar Life Insurance of NY (ING) A ING ROP Endowment Term - 30 Year
Stonebridge Life Insurance Company, Stonebridge Term - 30 Year with ROP
United Home Life Insurance Company, Premier Term 30 (with ROP)
United States Life Ins in the City of NY A ROP Select-a-Term - 30 Year
I also attached an ROP Analysis for $500,000 of term 30, regular/standard rates, for a male age 40 Non-smoker. In that example, the rate of return is just over 4%, which isn't bad when you consider it's guaranteed for 30 years, and is a tax free payout.
- 2,455
So the client would get back more than what they paid out in premiums?
What's the internal rate of return?
- 25,090
Bob, why did you pick Pru? # 8 down the list? In California any way. Columbus At $2,485 or AG at $2,535 would have looked much better with the after tax.
No, they just get back their premium. The rate of return is calculated by taking the difference in annual premium between the regular term vs ROP. Investing that amount of money per year to get the TOTAL ROP is how you get the rate of return.
Example.
30 yr term $500
30 yr ROP $800
If you were to invest 300 per year for 30 years to have $24,000 in 30 years is how you figure the "return"
- 1,405
Nothing sinister, just picked a well known company to offer as an example. I also used regular rates, when I could have used preferred plus rates. The idea was to convey the concept, not advocate for one particular company.
I think the point that each case has to be examined individually is a very good one. The nice thing about the rate of return analysis that Compulife performs, is that it can match any ROP policy against any non-ROP policy, regardless of company.
Of course if you pick an overpriced 30 year non-ROP term, and a highly competitive 30 year ROP term, the rate of return will appear very high.
One thing is for certain, you don't get your money back, you get the excess you paid plus interest. That's how it works and that's what the analysis shows.
On the other hand tax rules treat it as a return of premium (you get back your capital - no interest) but that's not how it really works. Canada actually had the same tax rules for decades, and then changed them in the 1980's, rendering such policies as having taxable earnings.
We used to have a product in Canada called Removeable Premium Term. In effect you bought a 10 year term and instead of paying an annual premium, you put up a lump sum of money to fund the product. At the end of 10 years you got your lump sum back - tax free. In fact you could quite the policy anytime and get the lump sum back, and either quit the policy or continue for an annual premium.
It was a clever idea and I think would be very marketable today in the U.S. The problem is that the more you take advantage of the tax advantages, the more you draw attention to them, and the more likely it is that the government will swoop in and "close the loophole".
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- 15,041
Someone frame this. I have said this for a while on here about PI. Stop rubbing the government's nose in it by constantly promoting PI's tax advantages. They have changed the rules on us twice already, let's not make them do it again.
Who the hell cares? Every time they do it they only apply the new rules to newly issued policies. So, we promote the hell of it now, and retire when they change the rules.
I'm referring to Ohio National in Cincinatti
- 1,405
The problem with the grandfathering thing is that tax laws can be changed to grandfather values to a particular date, and then apply taxes to values in the future.
Assume you have a 30 year ROP plan, and you are 10 years in. CSV in 10 years may be nil. Tax laws change, and now apply to future values. But that's when all the growth occurs.
