Tax on ROP?

[table83]

(Idaho) OK, I'm 25 and have a pregnant wife. So I bought a $500,000 Return Of Premium 30 year life insurance policy. 71.82/month which includes a $10 waiver of premium rider. Through State Farm. I'm in their healthiest bracket. At the end of the 30 years I get my premium back. (not including the WOP rider)

When I get my premium back is that taxable?


I'm past my free look period. Is it in my best interest to stick with this policy? What are my best alternatives?

Thanks!

 

[briko3]

It's not taxable. Anything classified as a return of premium (either in permanent insurance or term insurance) is not taxed.
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As far as if you should keep it? You can get the same coverage through American General for $47.48 per month with Return of Premium.

If you get it without return of premium, you can get it through Genworth (everything lower isn't rated as well) for $32.81/month.

If you do the math, your return on the extra you're paying to get the return of premium is 6.5% compounding. Seems like the ROP of is a pretty decent investment if you know for a fact that you'll keep the coverage the whole time. If you let it lapse, find a better deal, etc., you will lose all that extra money you put in. You're definitely in it for the entire 30 years.

What would I do at your age? Skip the return of premium and get the cheaper insurance. $32/month is CHEAP.
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BTW, some people will get a 20 years ROP to help pay for college. It comes a couple of years in to it, but that's when people start running out of money.

 

[dgoldenz]

ROP sounds great on the surface, but the fact is that most term insurance policies will get replaced long before they expire. Are you really going to keep the policy for 30 years, or will you start considering a new policy to extend the guaranteed period after the first 15-20 years? With an ROP policy, almost all of the cash value accumulates in the final 5 years of the contract. If you replace it after 20 years, you're left with minimal cash value. However, the longer you wait to replace the policy, the more it will cost to do so.

Do you only need $500k of coverage? Would you rather have $1 million of coverage for the same price, but without the return of premium?

 

[STIBROKER]

Statefarm is not a Life Insurance company.....rule of thumb.....you want a life insurance policy go to a company that specializes in Life Insurance.....

check your rates here...

Texas Term Life Insurance Online Quotes

 

[table83]

It's not taxable. Anything classified as a return of premium (either in permanent insurance or term insurance) is not taxed.
- - - - - - - - - - - - - - - - - -

As far as if you should keep it? You can get the same coverage through American General for $47.48 per month with Return of Premium.

If you get it without return of premium, you can get it through Genworth (everything lower isn't rated as well) for $32.81/month.

If you do the math, your return on the extra you're paying to get the return of premium is 6.5% compounding. Seems like the ROP of is a pretty decent investment if you know for a fact that you'll keep the coverage the whole time. If you let it lapse, find a better deal, etc., you will lose all that extra money you put in. You're definitely in it for the entire 30 years.

What would I do at your age? Skip the return of premium and get the cheaper insurance. $32/month is CHEAP.
- - - - - - - - - - - - - - - - - -
BTW, some people will get a 20 years ROP to help pay for college. It comes a couple of years in to it, but that's when people start running out of money.

Thanks for the advice this helped immensly! ROP is very appealing to me. It's like a really bad savings account that doesn't gain interest or account for inflation.

Help me on my math here. The reason I went with this was because I calculated it to be in my favor.

$32.81 * 12 months * 30 years= $11,811
then account for 3% inflation in the 30 years = $19,293

ROP
total payments (at $861.84 annual) + 3% inflation= $42,232- my premium $25,855= $16,377 total cost

If inflation is at 4% it works out in favor of the strait term, but I'm betting inflation stays low. At least for a couple years. After that it's just a gamble to me.

I did get quotes from other companies, but not on the ROP, 47.48/month is cheap!

I am aware state farm is a more expensive, but their ratings are what attracted me in the first place. How important is a companies rating?

 

[insuranceexec]

If inflation is at 4% it works out in favor of the strait term, but I'm betting inflation stays low. At least for a couple years. After that it's just a gamble to me.

What makes you think that inflation will stay low? Or that it is low now?.......LOL.

Take a look at the CPI over the last 3 years. Then look at all the printed money that has been thrown into the economy.

What is your definition of the word inflation?

BTW: When researching the CPI make sure that you understand what the government does not include in that calculation.

 

[dgoldenz]

ROP sounds great on the surface, but the fact is that most term insurance policies will get replaced long before they expire. Are you really going to keep the policy for 30 years, or will you start considering a new policy to extend the guaranteed period after the first 15-20 years? With an ROP policy, almost all of the cash value accumulates in the final 5 years of the contract. If you replace it after 20 years, you're left with minimal cash value. However, the longer you wait to replace the policy, the more it will cost to do so.

Read that part again.....$10 says you won't have this policy in 30 years.

 

[briko3]

American General is A+ rated. Like I said, for the extra you're paying (based on the companies I listed, not yours) for ROP, you're getting a 6.5% tax free return on your money. It's actually pretty good, but like I said, you're most likely not going to want the same policy in 5, 10, 15 years. As soon as you change it, you're not getting squat for all that extra money you're putting in to it.

Good luck! It's up to you on the ROP or not, but I can't imagine you'd want to pay that much extra for a company that isn't any better.

 

[insuranceexec]

Read that part again.....$10 says you won't have this policy in 30 years.

I think you are wasting your time. Remember this individual thinks that inflation is low and will remain so...........LOL

 

[Franz Kafka]

(Idaho) OK, I'm 25 and have a pregnant wife. So I bought a $500,000 Return Of Premium 30 year life insurance policy. 71.82/month which includes a $10 waiver of premium rider. Through State Farm. I'm in their healthiest bracket. At the end of the 30 years I get my premium back. (not including the WOP rider)

When I get my premium back is that taxable?


I'm past my free look period. Is it in my best interest to stick with this policy? What are my best alternatives?

Thanks!

Just keep the dang policy. Don't worry about the inflation. It's not worried about you. When you make more money later buy some more then. BTW congratulations.