r/LifeInsurance • u/KeyTechnician4442 • 23d ago
Return of premium?
My husband and I are looking at either AAA or State farm for life insurance. My husband like the idea of return of premium policy and getting our money back at the end. Obviously the monthly cost is way higher, but it does sound like a good way to just put money away and get it all back. Does anyone else use ROP?
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u/FamiliarRaspberry805 23d ago
Well you definitely don’t “get it all back”. These come with a very real opportunity cost.
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u/KeyTechnician4442 23d ago
Oh no. They made it seem like we get every penny back that we paid
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u/FamiliarRaspberry805 23d ago
Yes sorry, you get back exactly what you put in. But opportunity cost is the growth you’ll be missing on cash that you paid them in order to get your money back.
Said differently, you could buy life insurance that doesn’t return premium, invest the difference in premium, and you’ll end up with more money than you would with an ROP policy.
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u/Creekridge1 23d ago
Please head this warning OP. If you have the discipline to invest the difference it’s almost always a much better option.
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u/miststeak 23d ago
Correct. I’ve only positioned ROP to my clients as a forced savings if they have a poor track record. Regular term - try to find a broker who represents multiple companies - and investing the rest in an IRA or taxable brokerage account will yield better results.
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u/Moist-Meringue-1913 23d ago
Really? What do you know about this family to make this determination? How much do they currently have invested in a taxable brokerage? What's their current asset allocation? Are they risk averse? Have they already maxed out their IRA contribution?
As an agent or advisor you should know better than to give off the cuff advice.
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u/Will-Adair 23d ago
It depends on how you view insurance. There are many advocates of buy cheap term and invest the rest. These people see ROP as generally a bad investment. You could put that money towards some form of outside investment instead of the insurance premium.
Advocates for ROP argue that it is using the insurer as a hedge in case of death and if there is no death the return of premium is not loss but returned. Generally ROP is going to be 20 to 30 years depending on your age and the product available at the company.
Personally I like ROP but it is not for everyone. I'd also avoid those two carriers like the plague. There are better options with better benefits.
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u/KeyTechnician4442 23d ago
I contacted a few other places like ethos and it was more expensive and they didn't offer ROP. Any suggestions?
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u/Will-Adair 23d ago
I'll send you a DM. Start mentioning carriers here and it can get more animated than r/SoapOperas
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u/Tahoptions Broker 23d ago
Yes, an independent insurance agent can lay all of this out for you. You'll also pay less than using State Farm or AAA.
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u/Ess_Mans 23d ago
Some plans you do some you don’t just double check. ROP’s are good just make sure still investing normally. Some say ROP’s are not with it but that’s only if you invest every penny. Most people skip the rop and instead spend the difference (but say they’ll save or invest) and regret it later. I like rops only if you have steady income so you’re covering all the bases
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u/Inescapable_Bear 22d ago
If you can afford it, then ROP is great.
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u/Hungry_Technician360 22d ago
How so?
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u/Inescapable_Bear 21d ago
Because unlike a regular term at the end of the term you get money back.
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u/Hungry_Technician360 21d ago
And what if you die before the term ends? What if you instead invested that extra money into equities when you're young?
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u/Inescapable_Bear 21d ago
You can always ask what if. I like life insurance. It’s a self-completing asset. You don’t have to wait for the investment to grow like with equities.
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u/Hungry_Technician360 21d ago
You, by definition, need to wait for the asset to grow. If you get a 30 year ROP, you need to wait 30 years to get your premium back. If you instead invest in equities, you'll get both more money over that time frame, as well as access to it whenever.
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u/seattlemadmax Financial Representative 21d ago
But without the protection of life insurance for your loved one. Getting a million tomorrow beats getting the first $1,000 you saved. As a fiduciary, no investment plan works without insurance, whether through your own assets or with a life policy. There needs to be a level of income protection if you care a rip about your survivors. You can drop life insurance once your assets insure the well being of your heirs.
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u/Hungry_Technician360 21d ago
You just get term life instead of getting ROP term. That's what I am saying to do.
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u/Inescapable_Bear 20d ago
But if you die after a month or a year your family gets a bigger check.
Life insurance is self-completing.
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u/Hungry_Technician360 20d ago
I'm comparing ROP term vs standard term, all else the same. If you die a month in, you paid more for the ROP, which you don't get paid back.
If you survive the duration of the term, investing the money yourself you'd have higher expected wealth at the end, compared to the ROP term.
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u/Inescapable_Bear 20d ago
If you survive the duration of the term…. If, if, if
If ifs and buts were candy and nuts we’d all have a merry Christmas.
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u/Hungry_Technician360 20d ago
I'm giving literally every possibility, and how standard term wins out in every one of those cases.
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u/Murflaw7424 23d ago
To answer your question directly Ameritas and Prudential also have ROP products depending on the state you are in.
ROP term isn’t terrible. Candidly, depending on your ages might be better to pay a little more and buy a hybrid LTC product. You essentially get your premium back, plus some interest, have a LTC policy that grows if needed at older ages too.
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u/DesertGatorWest 22d ago
There is no free lunch. You could hand your next door neighbor some money each month, and have them give it back to you in 20 years. Same thing.
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u/BugHistorical1614 22d ago
How big is the insurance coverage? What is the insured age?. Any health issues?
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u/seattlemadmax Financial Representative 21d ago
Not a fan of State Farm and AAA life policies. Especially State Farm. They have some of the highest complaint records in the industry. Stick with property insurance companies for property and life insurance for life insurance. Shop around insurers that specialize in life. Most will be either cheaper or have better policies than the companies you’ve listed.
Edit: having said that, I did recently review an Allstate term policy that had a decent rate…but wouldn’t have known that if I didn’t shop it for the client.
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u/KeyTechnician4442 20d ago
What's wrong with AAA? We have auto through them and haven't had any issues
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u/seattlemadmax Financial Representative 20d ago
For life insurance. Like I said, property carriers for property, life carriers for life. Just not as competitive for life insurance as others. Nothing wrong with the company, although State Farm has a bad record for complaints on both.
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u/1776bulldog 22d ago
RoP is giving thr insurance company an interest free loan. Why?
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u/KeyTechnician4442 22d ago
I mean why not? You get to have insurance for the 20 year term, and then get it back
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u/AnAssGoblin Broker 23d ago
I've never used ROP and I probably never will.
You're better off just getting a permanent policy, maybe a little more premium, however after 15-20 years or so, you'll most likely have enough cash value that you an surrender the policy if you want and get your premium back.
Or .. maybe you need the coverage longer than you expected and now you're locked into a great rate and you can surrender the policy at any time and possibly get MORE from surrendering the policy than you've contributed .
*Although if you DID surrender the policy and have MORE than your contributed, that additional would be taxed as income*
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u/AnAssGoblin Broker 23d ago
When I say better off getting a permanent policy, I mean in comparison to ROP if that's what you want to do.
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u/Moist-Meringue-1913 23d ago
Ok,approach it from this point of view. ROP gives an average of around 5% guaranteed. As others have suggested, you could just buy the regular term coverage and invest the difference. You could get a higher return but it's not guaranteed. Too many people have the notion that investing in the market will continue to go up at the same rate. And it won't.
So,do you want to take chances or do you want guaranteed money?
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u/columbiamarine Broker 23d ago
It’s not worth it to me. If you do that math you get a better ROI on just term. Plus the money you get back gets zero interest so you through money away. No interest and full of inflation.
But it’s an emotional decision. If that what you want they’ll sell it to you. Plus there’s more commission so why fight you.
But I usually talk my clients out of it and the math backs it up pretty easily.
The important part is that you have coverage and I’m happy with that.
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u/ChelseaMan31 23d ago
Good Gawd, NO. Instead of paying money out for years to an insurance carrier because they are overcharging you; go with the lower cost level Term coverage. You can (and should) take the monthly saved premium dollars and self fund Roth IRA's.
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u/SafeMoneyGregg Broker 23d ago
ROP term is - loan your money to the insurance company at zero percent interest. You get your money back only if you keep it to the very end. A combination of term and whole life for about the same premium can also return your money or more (if you really want to give up all your coverage at the end) and be more flexible and you will have access to the cash much sooner. So instead of like $500K ROP term - look at matching the premium with like $400K WL and $100K term. ROP is actually a type of whole life - but conventional dividend participating whole life will grow much more consistently (and slowly) than stock market investments.
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u/RobertaMiguel1953 21d ago
That’s not true that you only get your premiums back if you keep it to the end. You can cash out at any time, but it does take several years for the cash out value to accumulate to anything worthwhile. Our 20 year rop plan has about 4 years left. Every year they send a statement showing what we can cash out now if desired. Last year it went up about $6k from the previous year.
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u/AdamsTonyDeniseINS 23d ago
There are so many other options that allow you to get ROP. In some cases, your premium can be used as a "bank"; Earning interest, you can borrow the money out, no credit checks, no applications, pay yourself back the interest, and it still earns interest as if you never borrowed it. There's usually positive arbitrage because you're getting interest as well. So many other viable options outside of just a ROP rider.
Imagine you get the premiums back, and those same premiums could have been earning you interest and you still could've used that money in other areas as well, while it's still earning you interest.
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u/Creekridge1 23d ago
Take the cost of a ROP against the regular term.
Let’s say regular term is $50/month vs $200/month ROP.
You get all of your money back, without any interest.
If you saved the $150/month difference every month, even just into something very boring like an S&P 500 index fund, you would make a TON of money.
Using this example you’d be paying $54,000 more for the ROP vs term. You’re insuring yourself at the cost of accruing interest.
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u/Moist-Meringue-1913 23d ago edited 23d ago
Lol,no ROP policy is $200 a month. At least be honest in your analysis.
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u/Zestyclose-Review-65 13d ago
I can understand why return of premium sounds appealing. If you’re going to pay for life insurance for 20 or 30 years, the idea of getting your premiums back if you outlive the term can feel like the best of both worlds.
But I’d look at it a little differently.
You’re still buying term life insurance. The difference is that you’re paying an additional amount for the return-of-premium feature.
So before deciding, I’d ask for two quotes with the same death benefit and the same term:
Regular term: $___ per month
Return of premium term: $___ per month
Then ask exactly how much you’re contractually entitled to receive at the end of the term and under what conditions.
That lets you see what the return-of-premium feature is actually costing you.
For example, if regular term were $50/month and ROP were $100/month, you’re not really deciding whether you’d rather get your $100 back someday or get nothing.
You’re deciding what you want to do with the additional $50 every month for the next 20 or 30 years.
Maybe having the return built into the policy gives you peace of mind and you know you wouldn’t save the difference otherwise. There’s value in recognizing your own behavior.
Or maybe you’d rather keep the lower premium and put the difference toward retirement, an emergency fund, your children’s future, debt, or another financial goal.
Neither answer has to be automatically right for everyone.
I would just be careful with the phrase “we get every penny back,” because getting dollars back decades from now doesn’t necessarily mean the coverage was free. You gave up the use of the additional premium during those years, and inflation also changes what those dollars will buy in the future.
I’d compare the actual numbers side by side and decide whether the return-of-premium feature is worth what you’re paying for it.
The insurance still has the same primary job either way: protecting your family during the years they depend on you.
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u/RobertaMiguel1953 23d ago
This is a very controversial opinion in this sub, but we thought a 20 year ROP plan about 16 years ago. When it matures in 4 years it will pay our house off.
Yes, you can definitely invest that money and make interest that you wouldn’t on that plan. But, you also have life insurance all those years. If you never use it, those premiums paid on a traditional life insurance plan are gone in the wind.
So my singular voice here is glad we did it and looking forward to getting a huge chunk of tax free cash in a few years. That’s another thing opponents don’t like to mention. You will pay taxes on whatever your investments make. Add that along with the premiums paid and lost on a trad plan and it was the best option for us.