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Financial Planning - Financial planning in general. (Moderated)
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Posted by on June 12, 2007, 5:11 am
Facts: The problem with Life Insurance is that it's a lose-lose
situation. You lose either way. If you die, you collect the money,
but you lose because your dead. If you don't die, you don't any
money, and you feel like you lose also, because it feels like you
wasted all your money on the premiums.
The policy I have is called a term-policy with a (ROP) return on
premium rider. It's a $500,000 policy that I got at age 33. I pay
about $70.00 a month. I did say it's a free policy, and here's the
reason. If I don't die in 30 years, I actually get all the premium I
put into my policy back. (Of coarse they don't pay interest, but it's
still good.) However, if I do die, then my family gets the $500,000.
I used to be a life insurance agent for about 1 year. I sold
variable, whole life, and term. All my co-workers never told the real
truth. So whenever you talk to a life insurance agent, be extra
careful. Even my co-workers that had ethics, didn't tell the truth.
It wasn't because they were lying, it was because their supervisor
they trained them didn't tell them the truth. So they were just
repeating the same lie the supervisor was telling them.
My company sold Term Policy, Variable Life, and Whole Life. The only
one I liked was the one that my company did not sell. That's the term
policy with a Return on Premium rider. Here's my reason for hating
these 3 policies.
Variable - Tied to much into the stock market. If the stock market
does poorly, you are risking losing your account. A life insurance
policy is suppose to be a guarantee and not a risk. That's the logic
of life insurance, a guarantee amount of money for your family.
Another problem is that all agent that I know of try to forecast the
stock market at 10 to 12 percent appreciation a year. If you tell
your agent to be very conservative, and forecast it at 8%, you'll be
very surprised. Actually, I'll be surprised if your agent will show
you the results. None of my co-worker ever did.
Whole Life - It's nice because it's a guarantee. However, when you
are paying thousands more then a term per month, it's just to
expensive.
Term - If you don't die, if feels like such a waste of money.
OPINION - When buying a Term Policy with a return on premium rider,
don't worry about the monthly premium. Remember, you will get your
premium back anyway if you don't die. Look for the 30 year policy,
because that's the most coverage. The main thing you want to look for
is a strong company that you know will be around in 30 years. Also,
if you decide to get 2 polices. Try to get it from 2 different
companys. Just in case one fold, the other one might still be
around. Even if a company does fold, it will be guaranteed through
some program automatically. However, it's still a hassle. So make
sure you look for a reputable company.
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Posted by joetaxpayer on June 12, 2007, 7:05 am
facts2opinion@gmail.com wrote:
> The policy I have is called a term-policy with a (ROP) return on
> premium rider. It's a $500,000 policy that I got at age 33. I pay
> about $70.00 a month.
You are paying about twice the premium (or getting half the benefit) of
a normal term policy. I am now 44 and justy made my annual payment of
$620 for a $1M term policy. The ROP you describe sounds like a variant
of whole life, as there's some investment involved to pay back after the
term ends.
Term is not lose-lose. If I die, my family can pay the mortgage, go to
school, etc.
JOE
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Posted by on June 12, 2007, 11:28 am
> facts2opin...@gmail.com wrote:
> > The policy I have is called a term-policy with a (ROP) return on
> > premium rider. It's a $500,000 policy that I got at age 33. I pay
> > about $70.00 a month.
>
> You are paying about twice the premium (or getting half the benefit) of
> a normal term policy. I am now 44 and justy made my annual payment of
> $620 for a $1M term policy. The ROP you describe sounds like a variant
> of whole life, as there's some investment involved to pay back after the
> term ends.
> Term is not lose-lose. If I die, my family can pay the mortgage, go to
> school, etc.
> JOE
JOE,
You might be right, but there's a couple of things I need to know
before we are comparing apples to apples.
1. Is your policy a 30 year policy?
2. How old were you when you got your policy?
3. What is the name of your insurance company?
I remember when I compared my regular Term Insurance verse the Term
with ROP rider it wasn't that much of a price difference. One thing
for sure is I would rather have people buy any type of life insurance,
then no life insurance at all. I just had 2 friends that had
family members die, and they had to borrow money just for the funeral.
My original goal of writing this is to get people who are against
buying life insurance to consider the Term with a ROP rider (which
would ultimately refund all the premiums if the person lives). After
all, a person has over a 90% chance of living after the insurance
expires.
To what I understand the term with the ROP riders is the worst product
for the life insurance company as in profits. However, it's the best
deal for consumers. AS I STATED BEFORE, THE LIFE INSURANCE COMPANY I
WORKED FOR DIDN'T EVEN SELL THE PRODUCT. I ACTUALLY WENT TO A
COMPETITOR TO PURCHASE THE PRODUCT.
Stan
ps Again, I'm proud of you and I'm sure your family is for making
sure they are taken care of.
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Posted by joetaxpayer on June 17, 2007, 12:20 am
facts2opinion@gmail.com wrote:
>>>The policy I have is called a term-policy with a (ROP) return on
>>>premium rider. It's a $500,000 policy that I got at age 33. I pay
>>>about $70.00 a month.
snip
> JOE,
> You might be right, but there's a couple of things I need to know
> before we are comparing apples to apples.
>
> 1. Is your policy a 30 year policy?
> 2. How old were you when you got your policy?
> 3. What is the name of your insurance company?
Since I'm years into the policy, and it was just a 20yr term, an apples
to apples would be to compare the latest available as would a reader of
this group.
Looking at insure.com, I found 30 yr term policies for $1M ranging from
$62.64 to $70.88 for a 30yr old. Since you bought at age 33, let's just
assume the term policy cost at $70/mo. This would be about $35 for the
same $500K you have. Forget that one would likely get an average return
pushing 8-10% (the long term stock market return) and assume 5%.
I calculate that $35/mo at 5% for 30 years is $29,129. And $70*360=
$25200. So, the extra money you are paying vs a straight term policy is
being returned to you at a not so great rate. At 8%, it would be
$52,000. On the other hand, it's 'forced savings', which is better than
buying a weekly latte at Starbucks.
I don't see how this can be 'worse' for the insurance company than the
straight term, they basically get to borrow your money at 4.2% for 30
years. You can do better on your own. I agree, insurance is important
for most people, but a bit of research should help them choose the right
policy.
JOE
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Posted by Mark Freeland on June 17, 2007, 3:18 pm
> facts2opinion@gmail.com wrote:
> [Comparing $500K ROP policy @$70/month with "buy term,
> invest difference"; $500K term policies available for about $35/month]
> Forget that one would likely get an average return pushing 8-10% (the long
> term stock market return) and assume 5%.
> I calculate that $35/mo at 5% for 30 years is $29,129. And $70*360=
> $25200. So, the extra money you are paying vs a straight term policy is
> being returned to you at a not so great rate. At 8%, it would be $52,000.
> On the other hand, it's 'forced savings', which is better than buying a
> weekly latte at Starbucks.
> I don't see how this can be 'worse' for the insurance company than the
> straight term, they basically get to borrow your money at 4.2% for 30
> years. You can do better on your own.
While I agree with the conclusion, there are a couple of other factors to
call out:
The 4.2% rate of return is guaranteed by the insurance company, while the
market isn't. Since the term is 30 years, a closer comparison would be the
current yield on a 30 year Treasury bond. (When one knows the date that one
needs the money, as one does here, a bond with that particular maturity is a
good place to invest; also, treasuries give you at least as good a guarantee
as the insurance company.) So the 5% rate of return Joe used is a good
one - don't assume more without greater risk than the ROP policy provides.
The insurance policy return of principal is tax free, while the bond is
federally taxable. Assuming a 25% bracket, the bond's yearly return comes
down to the same neighborhood as the insurance company's. Somewhat of a
wash.
An extra benefit of having the bond is that you can cash out at any time.
Sure, you may lose principal on the bond, but that's nothing compared to the
loss you'd have on the ROP policy if you cancelled it in the middle.
Mark Freeland
BnetOnewsX@sbcglobal.net
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