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 Posted: Thu Dec 03, 2009 10:46 am Post subject: ROP term life policy |
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What's an ROP term life policy? Is it more expensive and better than the usual TL policies?
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BillMcCarthy
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| Posted: Thu Dec 03, 2009 2:50 pm Post subject: |
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It is significantly more expensive. It's not better. It's not worse. I don't really like them because they take away flexibility. What I mean is that they are only better if the person holds onto the policy for the entire term. There are lots of reasons why someone would drop a policy before the term is up.
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gkasfjei
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| Posted: Sat Dec 05, 2009 6:57 am Post subject: |
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| Quote: | | There are lots of reasons why someone would drop a policy before the term is up. |
Why not share a couple of them with me!
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BillMcCarthy
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| Posted: Sat Dec 05, 2009 7:27 am Post subject: |
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Death
No need to keep the insurance
No need to keep the same amount of insurance
Financial difficulties
Want coverage for a longer period of time
Cheaper to replace coverage than keep it
Want to increase the death benefit
Example:
Jim has a $500,000 policy and is paying $500. 3 years later, he needs to increase his death benefit to $1,500,00. The additional $1,000,000 costs $1,000. However, if he buys a $1,500,000 policy, it costs $1,400.
Net result: He saves $100 and he has an extra 3 years on the original $500,000.
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sfkeeef
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| Posted: Mon Dec 07, 2009 6:08 am Post subject: |
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| See, the cost of the ROP policy would be more than that of a traditional term life coverage. The needed coverage term and your age are important factors to decide upon the type of policy that you should apply. |
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steven
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| Posted: Tue Dec 08, 2009 6:37 am Post subject: |
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| Whenever you'd compare an ROP policy with a traditional term coverage, you should remember that the shorter term you choose, it becomes more expensive for you. So, you should get a clear picture of the term lengths and the corresponding prices while opting for the ROP quotes. You may add riders to your ROP term policy, but be careful while choosing riders since you won't get a refund of your premiums. |
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roddick
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| Posted: Wed Dec 09, 2009 5:49 am Post subject: |
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Hi Rod,
| Quote: | | Whenever you'd compare an ROP policy with a traditional term coverage, you should remember that the shorter term you choose, it becomes more expensive for you. |
You'd probably get 2 types of ROP term-life insurance policies. One is known as the basic type, while the other one is a bit costlier. It's just that you'd need to pay less towards the basic policy, since you'd get lesser benefits in return in case you opt for an early surrender. But yeah, if you've paid your premiums till the end, you'd surely get reimbursed with 100% of your premiums.
Juanita
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Juanita
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| Posted: Wed Dec 09, 2009 9:56 am Post subject: |
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Bill . . .
ROP term will be anywhere from 30% to 100% more costly than a traditional term policy. It's a carrot-and-stick thing, only the stick is really big in comparison to the carrot.
You rarely find ROP Term less than 15-20 years in length. And you won't receive 100% unless you hold the policy to the end of term (or if you die before then the premiums paid are normally added to the death benefit paid to your beneficiary). In fact, in a 20 year ROP policy, you won't see anything before 10-12 years, and then only 2%-5% until years 16 or 17 when it begins to increase. But the 19th year might still only be 65%, so you'll need to pay one more year to get the other 35%.
Honestly, the insurance companies don't need to charge for this. They have the use of your money all those years, and the money stays invested, because they repay you with other people's money that's coming in the door at the time.
Save your money and stick with a standard term policy, if it's in your best interest. Understanding that if you need to continue the policy at the end of the term, it will be much costlier than it had been during the first 20 years. Usually double the first term in cost. And many policies only renew as Annual Renewable Term which will increase in cost every year. To get a new 20-year term, you would have to go through underwriting to prove insurability.
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MaxHerr
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| Posted: Thu Dec 10, 2009 7:40 am Post subject: |
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| Quote: | | To get a new 20-year term, you would have to go through underwriting to prove insurability. |
I got the cost explanation..but would it be a problem to go through underwriting at this juncture? What could be the challenges?
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BillMcCarthy
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| Posted: Fri Dec 11, 2009 1:05 am Post subject: |
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Bill . . .
A little background first.
When an existing 20-year term policy comes to the end of its term, depending on the insured's age, it may be renewable for another 20-year (or shorter) term without new underwriting, or it may only be renewable as Annual Renewable Term (ART).
If only renewable as ART, the policy will cost more money each year as you get older to the point that if a heart attack didn't kill you, the premium to continue the insurance would. It will not have a level premium like the first 20-year policy may have had.
So in order to get another 20-year level term policy with a level premium, instead of renewing the policy as ART (which requires no new underwriting), you would have to apply for and be underwritten for an entirely new policy, as if you had never had any insurance with the company. No special treatment, no breaks, typically.
Now here's the answer you needed . . .
That could easily be more difficult, if not impossible, based on your age and factors such as a significant change to your health status: heart attack/heart disease, high blood pressue, high cholesterol, diabetes, height-weight issues, cancer, or any other disease, psychosis, etc.
There used to be a product called re-entry term (I haven't seen any of these in more than 10-12 years, and doesn't mean no one has it available today), which guaranteed to renew a 20-year policy for another 20 years if you were age 45 - 55. The standard rate, without underwriting, would be significantly higher, due only to age. The "re-entry" option allowed the insured to go through underwriting to prove better insurability and possibly be rewarded with a lower (preferred) renewal rate. I f you didn't pass underwriting, you could still exercise the other renewal option, no questions asked.
If you were still in good health, underwriting an entirely new policy would probably not be a challenge, possibly even getting a preferred rate. The only risk today is not knowing what the future holds. I don't have a working crystal ball.
So 10-12 years from today, let's say, if you didn't believe you would be approved for a new policy, then it might be in your best interest to "convert" the term policy to a new policy, assuming that option exists in your contract. Conversion requires no new underwriting for the same face amount of insurance, but would for any increase in coverage.
Be aware that some 20-year term policies limit your ability to convert to the period between Year 3 or Year 5 and Year 10, or 12, or 15. If you miss the expiration of the option, then you're limited to the renewal option. So again, it's a matter of timing/guessing.
Most companies will force you to convert to a cash value policy, Whole Life or Universal Life most common, instead of another term policy, and that's more expensive by itself. If that's true about your term policy, then exercising a conversion privilege is always going to be less costly if done sooner rather than later, simply because all life insurance costs more as we get closer to dying.
It's one of the arguments some agents use to convince clients not to start with a term policy today. "Mr. Bluecollar, yes, our term policy is about half the price of our Whole Life Policy today. It does come with a conversion option and you could change to a whole life policy after five years. But the whole life policy 5 years from now will be more expensive than the whole life policy is today. How much more? Let me look it up . . . ah . . . about $35 per month more" (or whatever the actual amount is). So you would be saving a lot of money to go with the whole life policy instead, today.
That line of reasoning may or may not be true depending on how things shake out over time. But it's accurately stated.
Hope this helped.
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MaxHerr
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| Posted: Fri Dec 11, 2009 8:58 am Post subject: |
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| Some of you may be interested to invest an amount worth the premium difference between a traditional TL policy and an ROP TL policy. Before doing this, please check out the length of the policy term. |
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RupertWBradson
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| Posted: Fri Dec 11, 2009 4:44 pm Post subject: |
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Even putting the premium difference in a savings account at most commercial banks at 0.50-0.75% interest will do better than any 20-year ROP policy during at least the first 10-15 years. Using the money to fund one's Roth IRA and getting just a 5% return will be far superior.
The only "catch" in either case: dying too soon. You can plan on putting the money into savings, and even do so, but dying anytime soon wipes out the intended savings that have not had time to accumulate, let alone compound. But at least the beneficiary will get both the death benefit + the savings (assuming they are heir to the savings). Essentially the same as ROP.
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MaxHerr
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| Posted: Sat Dec 12, 2009 3:03 pm Post subject: |
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So buy regular term and "invest" the difference now?
What if my regular term premium is 35 bucks, at double the cost that leaves me with $35 pre month to invest. Where am I going to invest 35 bucks a month? Most mutual funds won't let me open an account until I've got $1,000 to deposit.
I'm not waiving the banner for ROP, I think it's an absolute waste of money. But you can't split the difference on these tiny numbers and invest them most of the time. |
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BNTRS
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| Posted: Mon Dec 14, 2009 8:08 am Post subject: |
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Many mutual funds will take a new account with a minimum monthly commitment of $25 by ACH from checking or savings.
Having said that, I agree that $25 or $35 per month over twenty years is not going to make anyone independently wealthy or even keep up with inflation. But even in a shoe box or under the mattress (0% interest), that would still amount to $8400 in 20 years.
A student showed me her ROP term policy five or six years ago -- I have a copy of it somewhere. Age 26 at issue, 20 year term, $25,000 face (yes, I know). $12/month premium ($120 annual), PLUS $16/month for the ROP rider. Absolutely insane.
The insurers could easily do ROP at no cost, or a nominal $5 per month. No need for 35-100% (or more) on top of base premium. As you say, "an absolute waste of money."
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MaxHerr
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