I have sensed that some life insurance purists on this forum seem to have something against return of premium term. Why? Seems to me that if you get a commitment from the client that it makes sense for them to pay the full term, what could be better? Seriously, you get all your money back, usually get a much higher death benefit than whole life, and there is no smoke and mirrors how much you get back if you were to default on payments in year 15 of a 25 year return of premium. Granted, you can't get as much death benefit for your money verses straight term - however if someone feels relatively comfortable with the death benefit, what could be better than eventually getting all your money back? Are the life insurance purists on the forum unsure if some of these companies will be around at the end of the term to pay back the return of premium (an argument against company stability) or is the issue with ROP something else? I too realize that there is much defaulting in payments on term, but if somebody realizes this, and is committed to the return of premium concept - what could be better - in the end it costs you nothing if you pay in the entire term!
I know Moonlight just hit the nail on the head...its all about how many policies stay on the books for the 20 to 30 year term, and until recently you couldn't use the ROP money until the policy was up or cancelled..I know some companies now let you access some of the rop money. I think the second reason I don't like ROP is no matter what I say and the materials I use the customer only hears what they want to hear, this is what they hear "If I die the policie pays the death benefit and if not I get all my money back" even though I am telling them no money back un years 1-5 and a graduated amount back until years 20 or 30 when its 100% back. Having said that and having put the numbers to it...I know I offer it along with my advice about it because some clients like the feature they think they are not "wasting" they insurance premium on term
I have sensed that some life insurance purists on this forum seem to have something against return of premium term. Why? Seems to me that if you get a commitment from the client that it makes sense for them to pay the full term, what could be better? Seriously, you get all your money back, usually get a much higher death benefit than whole life, and there is no smoke and mirrors how much you get back if you were to default on payments in year 15 of a 25 year return of premium. Granted, you can't get as much death benefit for your money verses straight term - however if someone feels relatively comfortable with the death benefit, what could be better than eventually getting all your money back? Are the life insurance purists on the forum unsure if some of these companies will be around at the end of the term to pay back the return of premium (an argument against company stability) or is the issue with ROP something else? I too realize that there is much defaulting in payments on term, but if somebody realizes this, and is committed to the return of premium concept - what could be better - in the end it costs you nothing if you pay in the entire term!
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.
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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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Moonlight you say, "Ever do the math on how much you'd have if you took an amount equivalent to the extra cost for ROP and put it in a different spot?" Good point, but who really saves those additional dollars and is anything for sure today in the market? Why not protect your life and get all your money back in this uncertain world? By the way, I'm ten years into my 30 year term and I intend to keep it the entire 30 years because it is so damn cheap...I wish ROP was around when I bought my term policy very young, the ROP then would have been a real bargain...Just my opinion.
Last edited by HealthGuy : 12-21-2008 at 08:08 PM.
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.
Mark, not disagreeing just a different view on the other lines offering ROP...since the only way the carriers can effectivly offer ROP is by using a long horizon to invest the ROP to provide the money to pay back that means keeping the same Car insurance, home owners, health insurance policy for 15-30 years....
I know I compare rates on my other coverages periodically because "to do less is crazy"
Mark it is true that only 2% or Term policies pay out...Have you ever seen numbers on how many term policies stay on the books to the end of ther period and also when those policies lapse because you are adding a signifigant amount to the premium....now on the other side of the coin that is good for the agent.
But we might just as easily add to there coverage say DI instead of ROP or Critical Illness or Health or fund there retirement account.
I do agree that we need to make them aware of all the options there policy can offer and let them decide what is important to them.
Ever do the math on how much you'd have if you took an amount equivalent to the extra cost for ROP and put it in a different spot?
What percentage of term policies stay on the books for twenty or thirty years?
How many clients, take the extra cost and invest the difference. Sounds like one of those buy term and invest the difference old school stuff I use to hear, that never worked for the client.
The problem is that 98% of the clients that keep their coverage the entire period will be out of a lot of money and will just have flushed it down the toilet.
Lets say you save $15.00 a month not buying the R.O.P. or you save $3,600 in 20 years and you invest it and get what 2% interest on it that you have to pay taxes on. Lets act like you wont have to pay taxes on the gain. 20 years have passed. The client that has R.O.P just got on avg, $30,000 to $40,000 back. The client that does not have R.O.P. just lost their $30,000 or $40,000, but they have their $3,600 with interest, which they had to pay taxes on, when my client paid no taxes on their return.
Hmm, I want to be the client that have R.O.P.
If you client is thinking about dropping their coverage after a couple of years, then why are they buying it to start with? With a lot of things in this business, I want to scream at the clients, don't touch the policy or money. I feel like an investment guy, screaming don't touch the money, leave it alone.
When asking what % keep it full term. the answer is less then 70%.
I'm telling you that you will see R.O.P. change very soon. The prorated R.O.P amounts will be better, but cost the client more.
Moonlight you say, "Ever do the math on how much you'd have if you took an amount equivalent to the extra cost for ROP and put it in a different spot?" Good point, but who really saves those additional dollars and is anything for sure today in the market? Why not protect your life and get all your money back in this uncertain world? By the way, I'm ten years into my 30 year term and I intend to keep it the entire 30 years because it is so damn cheap...I wish ROP was around when I bought my term policy very young, the ROP then would have been a real bargain...Just my opinion.
So very true we are a nation that doesn't save. As I said before Offer you clients the option but realize that the companies can afford to offer ROP because the can take the rop money and replicate the entire amount by investing it and make a profit...granted they also have the money from lapsed policies.
The other side of the coin is if you do die during the term you paid extra for ROP that doesn't come back to you....Like a UL with an option B
Mark it is true that only 2% or Term policies pay out...Have you ever seen numbers on how many term policies stay on the books to the end of ther period and also when those policies lapse
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I see every death claim, every lapse and just about everything with every policy that is underneath me. Yes, I know the answer quite well.
Matter of fact as an IMO, I'm required to have at least 70% to 80% of my business on books after 1 year. Most polices have to stay on books for 18 months for the company to break even.
I know all of the numbers. But let me tell you something. I know of a life company, that didn't have one death claim in a year, that only sells term insurance. Not one death claim in a year. They were bragging about it, and I could not believe it.
Lets say you save $15.00 a month not buying the R.O.P. or you save $3,600 in 20 years and you invest it and get what 2% interest on it that you have to pay taxes on. Lets act like you wont have to pay taxes on the gain. 20 years have passed. The client that has R.O.P just got on avg, $30,000 to $40,000 back. The client that does not have R.O.P. just lost their $30,000 or $40,000, but they have their $3,600 with interest, which they had to pay taxes on, when my client paid no taxes on their return.
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Mark your example is a client paying 125/month for 20 year for coverage and only $15 is the added cost of the policy for ROP I believe 30% would be more reasonable in which case 37.50 per month returning 8% would provide $21,337....I'm sorry when ever I look at ROP it adds more than 13% to the cost of the policy. I don't want to argue the numbers because we all know that number will work out otherwise the insurance company could not offer rop and make a profit.
I agree your presentation makes sense and the client does have the right to choose ROP.
Mark your example is a client paying 125/month for 20 year for coverage and only $15 is the added cost of the policy for ROP I believe 30% would be more reasonable in which case 37.50 per month returning 8% would provide $21,337....I'm sorry when ever I look at ROP it adds more than 13% to the cost of the policy. I don't want to argue the numbers because we all know that number will work out otherwise the insurance company could not offer rop and make a profit.
I agree your presentation makes sense and the client does have the right to choose ROP.
Bottom line in any math. 98% of the clients that keep their policies that do not die, will not get any of their money back. All of the clients that have R.O.P. and kept their polices will.
If you are asking how can a company afford to do this. It's simple. Only 2% of clients die with term insurance and you are right, a lot of clients will not keep their polices the entire time and insurance companies are getting a better rate of interest then what you think.
[COLOR=black]98% of the clients didnt die. They got to hold that money and invest it. They made a killing. Now they give your money back to you. It didnt cost them anything. The true cost of insurance is very low for that 2% death claims.[/COLOR]
I would gladly pay another 25% more to get R.O.P on my policy. I know I will keep it the entire period and some day get my money back. I hope to use that money to either put towards my funeral or go to Vegas, or buy my insurance agent a beer if he is still alive.
I can only show my clients this option, or can I say you old clients this option. Many will like it and buy it. The ones that don't, then that is okay. I would love to talk to them in the future after they are still alive and not getting their money back and tell them that I told them so.
I went to your website and pulled up the GTL moneyrate book you have available and looked at a 20year old individual nonsmoker 100% Base 100% and it offered $38,822 for $25 per month same quote but adding the ROP $40 per month gives $40,195 in coverage....I wanted to use one of your products....and the rate book is backwards...but close enough in this case the ROP does add $15/ month to the policy but the $15 represents 37.5% of the policy cost...or actually a little less because If I could get the exact same death benefit the policy would probably be $38 or $39 per month so $40 per month x 240 months = $9600 total refund and total investment...$15 of side investment money over 240 months with average return of 8% $8,534.99 it will take a 9.02% average return to accomplish the same thing the ROP does....So I think Historically its do able but the ROP does guarantee the result...HealthGuy this is putting the numbers to it....this example does not reflect cost of taxation on the side fund which leans the result more in ROPs favor.
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I do like spirited discussions...I am neither a hater or true follower of ROP...I offer the option to every client, the biggest drawback for me was the old style of ROP where you could not access the refund without lapsing the policy I think we all know clients that don't have the emergency fund we recommend and are up to the eye balls in debt and I didn't want my policy lapsed to provide money that could be available by using a side fund instead of ROP how now that some companies offer loans and access to some of the ROP money and defiantly when we offer insurance we are offering guarantees then ROP looks better and better.
Last edited by Norwayguy : 12-21-2008 at 08:45 PM.
Reason: Posts merged
When ROP first came to my attention around the late 80's or early 1990's { I really think it was the latter} the rider seemed like a huge gimmick. It made the premiums go way high, and it never really took hold in the market. It made the plan not at all competitive with even a UL -which were selling like hotcakes at the time.
Now, lately, I have seen some better riders and it looks like a better deal, now. So I think it got a bad name nearly 20 years ago when it appeared to be a junk rider. But now the insurance companies have tweaked it to where it's fairly good, and the UL's took a dive lately, so there you go.
Seems to be good computations Norwayguy...Why not do ROP on the CI, DI AND the Term life? This way, you always get your money back whether you die, are disabled, or do or don't get a critical illness. You can do the return of premium on all these products!
I went to your website and pulled up the GTL moneyrate book you have available and looked at a 20year old individual nonsmoker 100% Base 100% and it offered $38,822 for $25 per month same quote but adding the ROP $40 per month gives $40,195 in coverage....I wanted to use one of your products....and the rate book is backwards...but close enough in this case the ROP does add $15/ month to the policy but the $15 represents 37.5% of the policy cost...or actually a little less because If I could get the exact same death benefit the policy would probably be $38 or $39 per month so $40 per month x 240 months = $9600 total refund and total investment...$15 of side investment money over 240 months with average return of 8% $8,534.99 it will take a 9.02% average return to accomplish the same thing the ROP does....So I think Historically its do able but the ROP does guarantee the result...HealthGuy this is putting the numbers to it....this example does not reflect cost of taxation on the side fund which leans the result more in ROPs favor.
I bet you use the wrong rate book. You use the C.I. rate book that is attached to a term policy. Did you use the Critical Provider rate book?
That is a Critical Illiness product that attaches to a term policy and addes rop to it.
Let's say that it add 50% to the price. What if I came to a client and said I can cut your cost down 50% to drop your R.O.P.. Now 98% of you won't die, and will flush the remaining 50% of cost down the toilet, but I did save you 50%, but now you don't get your money back. But the good news is that 2% of you will die.
Last edited by Markingriffin : 12-21-2008 at 09:01 PM.
I bet you use the wrong rate book. You use the C.I. rate book that is attached to a term policy. Did you use the Critical Provider rate book?
That is a Critical Illiness product that attaches to a term policy and addes rop to it.
That is not what we are talking about. I will go make some real example and show u.
Mark,
I didn't use the wrong rate book....I used the only ratebook that I could find easily on the site..and I know critical provider is term with CI...but we are talking about ROP and in my illistration the only difference between the 2 numbers was adding ROP to the policy...and it also answered Healthguys question of what do you mean by running the numbers....
Also as I view myself more an more as an insurance agent instead of a financial advisor.....and I can't wait till securities is no longer the majority of my income ,don't I hate being an independent contractor but having big brother telling what I can and can not do, and as I am finding some companies as allowing access to the ROP money it is looking like a better product...in my example I would need to average 9.02% over 20 years to accomplish with a side fund would do without even factoring in taxation to the side fund which means at least to me that I don't want to cound on 9.02% being the average I need to get to accomplish something I can guarantee will happen without the hassle just by using the ROP.
I guess what I'm trying to say Mark is I'm not arguing with you about ROP
I guess what I'm trying to say Mark is I'm not arguing with you about ROP
I just wanted people running those numbers to know that is not a normal term policy, but a C.I. product attached to a term policy with R.O.P.
R.O.P. on those kinds of plans, is higher then a normal staight term product.
Also, thanks for your comments and input. I respect you and thank you for keeping me on my toes.
I'm use to some agents trying to trash R.O.P. or not understanding the market for it. Which to them, makes it easier for another agent to come in behind them. I have a whole system of coming in behind them, and showing the clients the options, and explaining to them about R.O.P. A lot of them, will jump on R.O.P.
R.O.P. also helps if one of the companies you are using cost more then another you are comparing to. The care a little bit less when they know they will get all of their money back.
Why Does ROP Get a Bad Name?
,don't I hate being an independent contractor but having big brother telling what I can and can not do, and as I am finding some companies as allowing access to the ROP money it is looking like a better product...in my example I would need to average 9.02% over 20 years to accomplish with a side fund would do without even factoring in taxation to the side fund which means at least to me that I don't want to cound on 9.02% being the average I need to get to accomplish something I can guarantee will happen without the hassle just by using the ROP.
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