Carriers factor in lapse rates on ROP term. They assume a very high lapse factor . . . around 85 - 90%.
In a way it is almost a Ponzi scheme. Use forfeitures from those who drop out to pay the ones who stay.
If the retention on ROP term exceeds 20% the carriers are going to be in a world of hurt.
But the chances of that happening are pretty slim.
ROP term has been around less than 10 yrs. Not long enough to know what really happens. Early figures indicate ROP stays on the books slightly longer than traditional term, but not by much.
You still have a high lapse rate, partly due to agents churning the business to get a new commission.
If you are going to buy term insurance, then you better buy R.O.P. I know it cost more, but it's worth it. The truth is, less then 2% of clients die with term insurance. I have to ask the other 98% do you want your money back or not? I would rather spend $35,000 that I will one day get back, then to only spend $25,000 that I will never see again.
I do specialist in replacing term polices that do not have R.O.P. . It is a easy for me. My question is if nothing happens to you, do you want your money back or not? If in 20 or 30 years, you are still alive, which I hope to be the case and I give you all of your money back, what did the coverage really cost you after giving returning your money back to you.
It is like renting a home for 20 years. You get to use the home for 20 years, and then you move out and ask the landlord for all of your rent money back and he gives it to you. But what if he charges you 20% more rent to do this. Would you still do it? I would. You get the protection that you need and if you don't use it, get all of your money back.
At least show your client the option and let them decide. I believe in R.O.P. All of my term polices on myself have R.O.P.
Not all R.O.P. plans are all of nothing on the return of money. Most are prorated. But I can tell you that in 2009, there will be a change to R.O.P. that will be better for the client that cancels their coverage early.
I love to find a client that does not have R.O.P. on their term policy and show them the option and tell them why they should do it. It's like preaching to the choir. They already know they need the coverage, I just have to show them why, my plan is better and it is really better for them.
Matter of fact, I wish all insurance had R.O.P. on it. Like my car insurance. If I don't use the coverage then give me all my money back in so many years.
Okay, I will shut up now and allow someone to give their thoughts on it.
I couldn't agree more. There are many clients serious about their life coverage that do plan to keep their term policies and like the extra guarantees of the ROP Term.
It depends on your market. If I told you my persistency on term policies, you wouldn't believe it. The peeps that I've sold ROP term plan to get their money back or walk away with reduced paid up insurance, which is a really nice benefit to an ROP term.
Someone mentioned earlier about the "buy term and invest the difference" concept. This of course was started by A. L. Williams. This was one hell of a concept and was good for the client. The only problem was that an overwhelming majority DID NOT invest the difference or didn't continue investing the difference. Great concepts only work if they are carried out. I did the Primerica thing when I first started out in insurance many years ago. It didn't take long to realize that even though it was a fantastic concept, for the most part, it just didn't pan out. First of all, it was too easy for the client to access the investment. When that happened, the whole concept went down the drain. They were back to square one. ROP 'forces' the client to save, which is the only way most of them will save any money. Just remember, the vast majority of the people out there are not investment gurus or do not have one working for them. They are just everyday folks scraping by. Yes, ROP is great for the insurance company, but for the vast majority it's great for the client too.
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Todd R. King
800-590-7207
540-400-6275
888-748-3978 Fax
Do the right thing because it's simply the right thing to do.
When I read through this thread, I was surprised no one brought up something that is important in the ROP issue, that of reducing term rates.
Carriers regularly adjust their rates on term life insurance to reflect changes in the mortality index. In many cases, especially in the last 10-20 years, term rates have gone down drastically on a per 1000 basis. I have seen many times where someone could go into a new 20-year contract (even with the same carrier) and pay less in monthly premium than the original contract premium, even at the increased age (barring any health/rating changes, of course).
Dave, I was sort of mentioning the reducing of term rates when I spoke of the insurance companies "tweaking" the plans through the years. I was hinting at it, anyhow. But you are right in the fact that: years ago the term plans with or without rop- were less competitive. Especially since we were selling UL. At least I was selling UL -back then.
I wonder how important the premium really is with ROP. Assuming there is no cash flow issue, the more the cost, the more the dollar return. And from what I understand, the additional premium would have to earn from 5-7% tax free and guaranteed to match the return of ROI.
When I read through this thread, I was surprised no one brought up something that is important in the ROP issue, that of reducing term rates.
It's all relative...if rates drop just re-write it with ROP again. Did they flush a couple of extra bucks for not being able to forsee the future? Yes...hindsight is 20/20.
Dave, with regard to your second quesion of ROP on just the rider on ROP on total premium, it's ROP on every single dollar paid in...base, rider(s), etc.
It's all relative...if rates drop just re-write it with ROP again. Did they flush a couple of extra bucks for not being able to forsee the future? Yes...hindsight is 20/20.
But if you re-write, wouldn't the client lose the ROP they paid on the original policy?
For example:
Banner Life w/ROP $21.50 Term $15.00 ROP
Three years later, rates drop and they go:
WCL w/ROP $16.25 Term $15.00 ROP
What happens to the ROP on the Banner policy?
Originally Posted by WIN
Dave, with regard to your second quesion of ROP on just the rider on ROP on total premium, it's ROP on every single dollar paid in...base, rider(s), etc.
That is what I remembered after I typed it. Thanks.
I guess my thinking here is that if you are looking at adding ROP to a term plan, couldn't you do something similar with a UL policy? And in the same premium range but with a lot more flexibility?
I see term prices coming up to be honest. Not going down. I've study the cso 2001 report and there are some re filing coming in 2009, that will raise some of the rates with a lot of the companies. The Ins Dept has ask the companies to refile with some changes that will make the prices go up.
I don't think this will be a big issue. I bought a policy over 8 years ago, and I'm still happy with the price I'm paying. I'm not mad that the prices have went down some.
But, I see prices coming up on term insurance. But don't shoot the messager.
I see term prices coming up to be honest. Not going down. I've study the cso 2001 report and there are some re filing coming in 2009, that will raise some of the rates with a lot of the companies. The Ins Dept has ask the companies to refile with some changes that will make the prices go up.
I don't think this will be a big issue. I bought a policy over 8 years ago, and I'm still happy with the price I'm paying. I'm not mad that the prices have went down some.
But, I see prices coming up on term insurance. But don't shoot the messager.
ROP on every single dollar paid in...base, rider(s), etc.
Could be wrong, but seems like there were (are?) some plans that only ROP the base premium, not riders. I believe the F&G mortgage products were like that but sure someone will call my hand on that one.
I see prices coming up on term insurance.
That wouldn't surprise me.
Life rates are based on mortality and earnings. While mortality may be improving (ever so slightly), ROI is not. With all the carriers getting banged, look for them to find more ways to increase reserves to offset the losses.
Could be wrong, but seems like there were (are?) some plans that only ROP the base premium, not riders. I believe the F&G mortgage products were like that but sure someone will call my hand on that one.
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R.O.P. minus if any claim is paid out on another rider or death claim. In other words, if they pay a claim on the D.I. Rider, then they minus this from the R.O.P. is standard practice with insurance companies.
But if there is no claim on the riders, then the full amount is returned back to the client.
Ignorance is bliss. I didn't know that they were raising their rates, but got 3 apps in the first week of December, before the rate increase Dec 15, 1 has been placed and the other 2 will be placed next week.
All were very small, on health customers, which is typical, but still... at least I didn't have to back track and make up some BS about why the quote was different, etc.
Most people know when you start babbling to cover your errors.
I agree, I can't see term with ROP or without it getting any cheaper..ROP is still a good deal with CERTAINTIES, unlike the smoke and mirrors that go with whole life and other forms of variable life, my opinion.
Re: Why Does ROP Get a Bad Name?
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