Scroll down for a discussion on Why Does ROP Get a Bad Name? within the Life Insurance Forum.
Originally Posted by TRK3031962
First off, I didn't ASSUME anything. You did. I said that the overwhelming majority won't invest the difference or won't continue ...
First off, I didn't ASSUME anything. You did. I said that the overwhelming majority won't invest the difference or won't continue it once they started it. Since you seem to want to perpetuate that you know so much about investing, maybe you can answer this....what is the percentage of income producing people that invest outside of their 401K's etc. as compared to those who don't? No, I don't know the answer to that, but I'll be willing to bet money that there are more who don't than those who do.
Secondly, I did not say they would keep the ROP policy the entire time either. Once again you are the one that seems to be assuming here. I could be wrong, but it just seems like you want to justify your own means and that's fine, just don't put words in my mouth. If you and your clients are happy with what you do with them, then fine, great, happy for ya. Go get 'em tiger!
[COLOR=black]Quote from TRK: “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.”[/COLOR]
[COLOR=black]WRONG! The ROP FORCES the client to pay more for term insurance than need be, all the while the insurance companies PROFIT even more so, than with regular term.[/COLOR]
[COLOR=black]Quote from TRK: "I said that the overwhelming majority won't invest the difference or won't continue it once they started it. [/COLOR]
[COLOR=black]So what is your suggestion for these people who don't save or invest? Buy an OVERPRICED ROP term that statistics say will be dropped anyway? You are ASSuming that people won’t keep investing in mutual funds BUT that these same people will continue to pay those overpriced ROP rates until they get their money back 15, 20, 30 years later? LOL [/COLOR]
[COLOR=black]If a client started to invest today in a GOOD TRACK RECORD mutual fund for let's say 10 years. Let's say this same person started a 15, 20, 30 year ROP term policy today as well. In 10 years I'd be willing to bet that he got more bang from his buck after those 10 years with his mutual funds. Being that the MAJORITY of ROP must be held the entire length of 15-20-30 years in order to get that money back. VERY FEW companies like ING for example will give you a small pecentage back after as little as 5 years of holding that ROP and that percentage is pathetic! AND of course it cost even more for those than the regular ROP terms. I'm not ASSuming anything in saying the average person keeps his term coverage for 9 years and his ROP a couple years longer. Which means this person, if not in the few companies that give a SMALL percentage back after 5 years will have lost more $ if he went with the ROP and gained NOTHING! [/COLOR]
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Originally Posted by arnguy
Can you give us the name of some Mutual Funds that have returned 12% or more over the "long term?"
Isn't the S&P 500 basically made up of the 500 largest companies? Wouldn't you be better off buying no-load index funds than buying much more expensive Large Cap Mutuals which have management expenses and loads? Dave Ramsey only believes in buying loaded funds...I wonder why that is?
Hasn't the S&P 500 outperformed almost every single Large Cap Mutual (after all expenses) over any given 10-year period in history?
I know this goes against Dave's "teachings" but isn't it correct?
I was simply responding to a question posed by another member above asking specifically about Lage Cap funds. As I mentioned in my post Large Cap IS NOT the end-all-be-all. There are MANY GOOD areas out there to invest in. No load index funds included!
Last edited by pebble head : 12-26-2008 at 05:22 PM.
Reason: Posts merged
Thanks for the reply Pebble Head. Not many with a 12% or better return and I noticed that the average return for this class of Mutual Funds is 7.51%. Not too shabby, but do the numbers take into account fees and taxes?
Not sure. I don't focus in only on those particular funds per se, I was just showing you that 10% or better funds are out there in the Large Cap category you mentioned. Yes, the average in that particular category shows 7.51% over 20 years.
Yes, the average in that particular category shows 7.51% over 20 years.
And you think 5-7% guaranteed tax free is not a good idea...what gives? Again, we're not talking about their entire retirement plan, we're talking about a very small piece of the pie.
Why do you CONVENIENTLY pick out a piece of my thread and attack it? LOL Did you NOT read the other 50+ sentences wrote? I said AT LEAST TWICE NOW, PROBABLY 3 TIMES that the Large Cap is NOT the end-all-be-all. That is but one little option amongst a sea of options.
I'm done w/ this thread. Ray Charles can see it, if some of you can't, then...
Why do you CONVENIENTLY pick out a piece of my thread and attack it? LOL Did you NOT read the other 50+ sentences wrote? I said AT LEAST TWICE NOW, PROBABLY 3 TIMES that the Large Cap is NOT the end-all-be-all. That is but one little option amongst a sea of options.
I'm done w/ this thread. Ray Charles can see it, if some of you can't, then...
Read all of it...just playing a little devil's advocate.
To me the real problem with ROP that no one has mentioned yet has nothing to do with investment returns and everything to do with the fact that you get either the return of premium OR the death benefit. BTID would yield both.
People do like it though and most can afford it while not sacrificing their death benefit...so I wholeheartely offer it.
ROP term is a great product if the clients age and risk class provide a descent rate of return. Certain age and risk class bracket combinations provide a 5-8% IRR when comparing it to buying term and investing the difference. In those circumstances only would I recommend it for a client, and they do come up occassionally.
However, I had a sale a while back that it was a horrible deal which I stated to him, but he still wanted it. It's no different than buying a brand new car, sure it depreciates, but it sure is shiny.
I had a client that was at the end of a 20 year term plan. He was around 69 years old now. Guess what? He didn't die. He told me that he wished he had bought R.O.P. plan. But they didn't have a R.O.P. when he bought this plan. I wish that he had bought a R.O.P. plan and even if it cost him a lot more money each month, where would he be today? He would have around $25,000 to $40,000 being returned back to him. He could have used this money as a final expense fund and could have taken the rest of the money and did anything with it. He had wasted a lot of money on this term plan. Let me reword that. He could have died and needed the coverage. He just wished he had gotten his money back after the term period had ended. He is a big fan of R.O.P. now and told his younger son, to switch his term plan to a R.O.P. Plan.
Just some food for thought.
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Mark Rosenthal aka markingriffin
IMO/Ins Agent/Agent Trainer/Free Advice markcrosenthal@aol.comwww.realfastservice.com
Please visit mywebsite to learn more about me.
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ROP now represents about 1/3 of my Term sales by phone and e-mail...and growing. People really seem to like it, and it usually doesn't cost that much more with 30 Year Term. I wish I had started offering it sooner! (plus it's boosting my average Term case into the $800+ range)
ROP "term" is essentially "crippled, temporary, Whole Life". In other words, ROP "term" is Temporary Whole Life with a "conditional CSV", or if you wish a "crippled endowment in X years"
- If you croak before ROP becomes available, the insurer keeps your ROP.
- If you find a policy with a lower premium or cancel for whatever reason before the conditional CSV (ROP) becomes available, the insurer keeps the ROP.
Like every rule, the above has its exceptions; however, while ROP will increase the premium size of the average "term" case, it's a rip off for consumers.
IMO, ROP on "term" normally stands for "Rip Off Plan"
I had a client that was at the end of a 20 year term plan. He was around 69 years old now. Guess what? He didn't die. He told me that he wished he had bought R.O.P. plan. But they didn't have a R.O.P. when he bought this plan. I wish that he had bought a R.O.P. plan and even if it cost him a lot more money each month, where would he be today? He would have around $25,000 to $40,000 being returned back to him. He could have used this money as a final expense fund and could have taken the rest of the money and did anything with it. He had wasted a lot of money on this term plan. Let me reword that. He could have died and needed the coverage. He just wished he had gotten his money back after the term period had ended. He is a big fan of R.O.P. now and told his younger son, to switch his term plan to a R.O.P. Plan.
Just some food for thought.
Mark you are so right...When I took myself and what I thought out of the situation this is what happened...met with a client for there retirement plan and inquired about life insurance they were adamant that they had taken care of this last year so I said let me record the information in my files got the amount the length of policy and monthly premium. Got home ran the numbers and could save them a little bit each month, but I want to try something so I emailed the client (almost all communications with this client happen via email) and said I wanted her to know I took a look at what we had to offer and we could either save them about $7 a month or for just $12 more than they were spending now a different policy that could return over $10,000 to them when the policy ended...Her response lets set up a time to get this in place.
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Originally Posted by Ami
ROP "term" is essentially "crippled, temporary, Whole Life". In other words, ROP "term" is Temporary Whole Life with a "conditional CSV", or if you wish a "crippled endowment in X years"
- If you croak before ROP becomes available, the insurer keeps your ROP.
- If you find a policy with a lower premium or cancel for whatever reason before the conditional CSV (ROP) becomes available, the insurer keeps the ROP.
Like every rule, the above has its exceptions; however, while ROP will increase the premium size of the average "term" case, it's a rip off for consumers.
IMO, ROP on "term" normally stands for "Rip Off Plan"
If you die with ROP, regular term or whole life insurance the company pays death benefit This is true of all policies except and option 2 or B of UL that lumps cash value unto death benefit.
Most quote I have run on ROP term is still much less expensive then whole life and UL with a guarantee.
ROP silences the client that says they won't buy term because at the end of the term they wasted there money (Can't fix stupid).
Are there downsides to ROP Term most definatly should everyone have it, I don't think so. Should everyone at least be informed about it, yes I think they should be given the option.
Can a client invest the difference in a side fund and make more money, I ran the numbers earlier in this thread and its possible but try talking your client into continuing that approach if you took out the policy in 2007 and started investing the difference also in 2007.
Last edited by Norwayguy : 01-28-2009 at 11:20 AM.
Reason: Posts merged
I'm 27 years old and I am going to be purchasing my term plan very soon. I'll be going with a ROP plan, so will my wife to be. It makes complete sense. I'll have something to look forward to in 30 years. Well, we both will. A lot of aging folks could use that extra money coming back from their term policies.
Are there downsides to ROP Term most definatly should everyone have it, I don't think so. Should everyone at least be informed about it, yes I think they should be given the option.
Can a client invest the difference in a side fund and make more money, I ran the numbers earlier in this thread and its possible but try talking your client into continuing that approach if you took out the policy in 2007 and started investing the difference also in 2007.
"Should everyone at least be informed about it, yes I think they should be given the option."
There is no question about this. The client should be shown all the available options; however, it is the job of the agent to be realistic. The primary purpose of life insurance is risk transfer (yes, there are byproducts that may be applicable in specific situations but risk transfer is the primary purpose). It's also quite obvious that most individuals with long term financial obligations are under-insured and few can afford to cover the entire need (especially in the current economic reality/uncertainty). IMO, the primary objective should be to cover as much of the projected need as could comfortably be afforded by the purchaser over the term of the contract.
Yes, you can play the numbers with ROP IIR but that is only relevant when/if the entire need is covered first.
One needs to keep in mind that few T20 and T30 policies will run their course - all the way to the end of the level period. Insurers know this and factor in the lapse assumptions. That's one of the reasons why the projected IIR papers as well as it does. Moreover, in the rare and unlikely event that the cover is in force and the insured dies, the DB doesn't include ROPX but the 'ROP premiums' are kept by the insurer. In reality ROPX (Return of Premium on Xpriry of the initial level term period) for "term" life insurance, and for most people, is "voluntary additional premium" w/o a realistic likelihood of either ROI or recovery of the voluntary additional premium Principal itself.
Another way to look at ROPX for "term" life insurance is to consider this as "insurance of the premiums against survival of the policy and the insured to the end of the initial level period".
-If the insured dies, the company keeps the ROPX portion of the premium;
-If the policy dies, the company keeps the ROPX portion of the premium;
-The only way that the client would receive the ROPX portion of the premium is if neither of the above two events occur before the Xpiry date.
I think that it's a better bet to put premiums against Democrats or Republicans having a majority in the House in 20 or 30 years from now (pick your choice). At least that would work on theoretically equal probability and much better odds that the lottery-like probabilities of ROPX.
It depends what the insurance is for. If the term policy is to cover a specific asset, such as a home then it does make sense in a lot of cases to offer ROP i.e. a recent case of mine had the base policy montly premium at $34 a month and with return of premium it was $38. How could you justify not offering a full return of premium at the end of the term for an additional $4 a month, knowing that these people have no other investments other than their real property? If I take a 35 year old client who has expressed to me that they plan on staying in their home and are not within the majority that move every 5 years, why would I not show them how to pay their mortgage off early? Let's look at the #s.
We know that if someone has a $1200 monthly mortgage that if they pay an additional $100 monthly toward their principal that they are shaving approximately 7 years off of a 30 year mortgage. There are a plethora of companies that do this for a fee with setting up a 26 payment a yr plan for a home owner. The numbers don't lie... 7 years off their mortgage saves them $92,400, taking into consideration the extra month they pay for their house payment each year. Now take them to a 20 year ROP that they are paying $100 a month for... They would receive back $24000 that they can throw on to their principal and effectively pay their home off 10 years early... so now, they are paying an additional $200 a month extra which over 20 years comes to $48000 but they are shaving 10 years off of their mortgage which would be a total of $144000... you just helped an average home owner save $98k. These are people that are not interested in investing but are interested in their home and paying it off. Even if you had them invest that $100 over 20 years, can you promise them the same return? PROMISE them? You can take into consideration the other $100 because they need their insurance. They have to cover that asset. Correct me if I am wrong but I don't think any of you can promise that kind of return for someone over that period of time with that small investment amount. Yes, it is a possibility that they could gain that amount but it is not a definite. What I just illustrated to you is a definite.
Of couse, if you want bto throw some s**t on the cake, just bring up the present value of a dollar, the future vale of a dollar, and the opportunity cost. I don't really want to get into that, buit if a client wants ROP I think you should give them what they want assuming they know all the aspercts of the product. e.g.. $25,000 30 years from now is not worth what $25,0000 is worth today.
Of couse, if you want bto throw some s**t on the cake, just bring up the present value of a dollar, the future vale of a dollar, and the opportunity cost. I don't really want to get into that, buit if a client wants ROP I think you should give them what they want assuming they know all the aspercts of the product. e.g.. $25,000 30 years from now is not worth what $25,0000 is worth today.
I used to be one of those that thought ROP was throwing good money after bad and recommended the clients invest the difference and offered them mutual funds (which is pretty much the most viable option to possibly out perform the ROP. And I know people would point to todays market climate as why that is not a good option and I would say that today doesn't matter...what I have found that is more important is the clients mentality. I'm tired of trying to get the clients to take the long view most will disregard solid advice and end up buying high and selling low and I also have many clients that would never invest in market type products and ROP has been a good option for some of these clients.
I do not sell this product to all my clients and I do try to cover the need first but like I've said before you can't fix stupid. I just had a client willingly spend $12 more per month for ROP and refused to look at adding to the death benefit because they didn't believe the the extra $12 a month the most they were willing to pay would provide enough extra money that the lifestyle wouldn't be affected so they decided to stay at a piddly $100k but add the rop because they feel like so many do that nothing will happen to them and they had been throwing there money away...Yes to these clients we can talk about opportunity cost, inflation, real purchase power till we a blue in the face by becoming there life agent over there p&c agent I can do a yearly review and keep recommending the added coverage.
Re: Why Does ROP Get a Bad Name?
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