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Grace Said:

How does Return of Premium life insurance work?

We Answered:

ROP Term Insurance

As I thought the life insurance industry can't screw people up more than they already have with the cash value life insurance, a new type of term insurance called Return of Premium (ROP) Term Insurance been showing up these days.

ROP Term Insurance is nothing more than screwed up version of whole life insurance. While its less expensive than Whole Life insurance, its more expensive than term insurance. If you don't know this fact, whole life insurance builds cash value which you can borrow at anytime (don't that sound awesome to borrow your own money?). In ROP Term Insurance, it doesn't build cash value. Instead, the insurance company takes the extra money and invest it into their own accounts. You can't borrow it or can you surrender the policy to take the money. At the end of the term, they will return all premiums back to you and keep the gains for themselves.

Does that mean this type of life insurance is free? Absolutely not. Take a look at this example:

Lets say you are in perfect health and you are 30 year old. You purchase a 30 year term policy with $500,000 coverage. With a level term policy, it will cost you around $45/month. With ROP Term policy, it will cost you around $80/month. The insurance company will invest the difference of $35/month in their own account. At a 12% rate of return, they will accumulate about $124,000 in 30 years. The total amount you paid in for those 30 years is $16,200. How excited are you to get back the $16,200 you paid for while the insurance company made a profit of $107,800?

As you can see, insurance is never free. The cost of you buying a ROP term policy in that example is $107,800. You could of made $124,000 in your own investment account.

In closing, no matter what crazy idea that the life insurance industry may come up with, traditional level term policies are always the best type of life insurance for the consumer. Its inexpensive and it enables you to put your savings where ever you want such as CDs, money markets, mutual funds, IRAs, 401(k), etc

Stella Said:

Can I change my life insurance to a "return of premium" style policy?

We Answered:

Return of premium life insurance is becoming pretty popular, but I would research it more before you converted your policy... if you can. You will usually pay double or triple what a term policy costs and if you take that extra money and put it in a mutual fund, your likely to see a much better return.

Martin Said:

Should I buy Return of Premium or Term Insurance?

We Answered:

Actually most of the 'big' term companies 'Select Quote,' 'Matrix Direct," etc... only represent about a dozen companies. A traditional broker (like us) represents upwards of `150 different carriers so we beat those national advertisers all the time.

You can get quotes directly from my site to compare the best straight term and the best return of premium term policy -- because they'll be different companies for you. Western Reserve probably (without looking) has the best return of premium rates - and they're an Aegon company. On my site you'll get the same companies (at the same rate) as those others, but you'll get ~140 others.

Also, with Matrix Direct most consumers are under the impression they're working with a 'broker' but don't realize that they're owned by AIG who owns American General and 9 times out of 10 that's who they're selling. The ancillary companies they sell are for window dressing because I can usually find an A-rated carrier that has rates up to 20% lower than Am. Gen.

Since you didn't provide an amount I couldn't do the math for you to calculate the return. That's what you need to do. Calculate the return and if it's a 5-7% rate of return it's pretty much a no-brainer on the return of premium product.

Hope that helps. Let me know if you need assistance with the math.

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Additional info....
I still don't get how she gets those 'best answers' because she obviously doesn't get life insurance at all. I just had a 22 yr old leave my office and a $250,000 30 year term was about $15/month and a 30 year Return of Premium term was $20 per month. SO, for $5/month you'd get $7,200 30 years later. You'd have to get a 7.8% AFTER TAX rate of return on that $5 difference over 30 years.

That's a no-brainer. You'd have to have an impairment to not understand that math. But, as I said do the math to make sure it's the same for you, but I can't imagine it not working in a similar way. But again how can she say "Return of premium term life insurance policies are easily sold to people who are bad at math."....please show me an investment that yields 7.8% tax free....you can't.

Also note that if you cancelled along the way you'd get a portion back AND you could take a small paid up policy at the end. Which in this case would be miniscule, but it's still an option.

http://insurancepickle.com/life-insuranc…

Joy Said:

low premium high return life insurance policies of life insurance corporation of india?

We Answered:

Hi Harry,

Facts about Jeevan Saral:

Insurance Cover: 250 times of your monthly premium + All premiums paid - 1st Years premium
Term: 25 Years
Partial Withdrawals: Possible after 10 years
Loyalty Additions: Are not guaranteed, but you may get starting from 10th year onwards.

See that you are not misguided by agents claims of very high returns and all. They have fooled two of my friends by selling same policy. Both of them are paying Rs. 2000 as monthly premiums and are assured 17 lakh guaranteed returns after 21 years and so on.

If you can share your e-mail address, I can e-mail you the sheet used by agents to fool common people.

You can check, whether sheet provided by agent is correct or not. They call it as a ATM plan and so on. If it says, after paying monthly premium of Rs. 400, you would get guaranteed returns of Rs. 85,162 then he is fooling you. LIC website says, the guaranteed returns after 10 years for monthly premium of Rs. 400 would be around Rs. 43,200 and very low loyalty addition.

If you need more details or any help regarding financial planning, contact me or any financial planner.

Regards,

Pranav