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what do you think about state farm's return of premium term life insurance?

August 13th, 2010 | | Tags: , , | 4 Comments | |

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4 Responses to “what do you think about state farm's return of premium term life insurance?”

  1. Bryan Says:
     August 13th, 2010 at 11:49 pm

    ROP insurance is great if you want to get some kind of extra value from a term life insurance product, but I wouldn’t use State Farm’s insurance for it. ING has the most competitive ROP Term insurance available in the market right now. The ROP is mostly extremely useful if you’re young, since the chances of you dieing are much lower. That’s the main complaint with term insurance, that many people outlive the policy. With the ROP with ING you have two options. Get the money back, or put that money into a permanent small policy that you wouldn’t have to pay another dime for. That’s the option that most people end up doing.

    IE You get a 30 year ROP Term policy with ING. After 30 years, you’re still alive and you paid $50,000 throughout the 30 years. You can either get a large portion of the $50,000 back, or you can switch it into a small life insurance policy that you can use for whatever purposes you want.

  2. mbrcatz Says:
     August 13th, 2010 at 11:49 pm

    I’m not a fan.

    See, it costs WAY more than straight term, and you only get the "return of premium" IF you continue paying the insurance for the ENTIRE term.

    If you cancel before your 20 or 30 years are up, you get NOTHING.

    Plus, do the math: If you’re premium is $200 a month, after 20 years, you’ve paid in $48,000, and you’ll get that back if you don’t die. Which you probably won’t (die, that is). BUT, if you invested that, at a VERY modest 6% return, you’d have your $48,000 PLUS an additional $45,332.26 just in interest!!

    Would 20 year straight term cost you $45,000 over 20 years? Absolutely not – maybe 25% of that. So by buying ROP term, you’re LOSING about $30,000, while committing to spending $48,000. You’re giving them an EXTREMELY expensive (to you) interest free loan, while locking yourself in as a customer for the entire 20 years. The numbers are even worse, for 30 year ROP – loss of $130,912.03 in interest income, net loss of $58,912, committed spending of $72,000.

    It’s only a good deal for the agent, or people who are bad at math.

    http://www.msfinancialsavvy.com/calculators/monthly_deposit_savings_calculator.php

  3. Ginger Says:
     August 13th, 2010 at 11:49 pm

    I like the ROP policy that State Farm offers because you get every dime back that you invested. Of course, you’re going to pay more for the coverage than you would for straight term. Also, go to http://www.thestreet.com and you will find a list of the most financially strong insurance companies in America and you’ll see State Farm is at the top of the list for life insurers. You want a company who will be there when it’s time to pay the claim.

    When buying a straight term life product, you’ll pay less and can always invest the difference in mutual funds and most likely get a much better return. Any company you’re investing with that has a ROP policy is doing that themselves. They’re investing the money and getting the return.

    ROP is great for those who aren’t habitual investors and know they won’t invest. With the ROP, they’ll at least get the money they spent back if they don’t die before the end of the term.

    Bottom line, if it’s the right policy for you, State Farm, New York Life or Northwestern Mutual is the way I would go. Period.

  4. Finance1o1.blogspot.com ® Says:
     August 13th, 2010 at 11:49 pm

    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 maybe able to borrow the money, but that will cost you more 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.

    What if you die during the term? If you died during the term, then you have overpaid your premiums. No one knows when they are going to die, which makes ROP term insurance more costly to the consumer. Most people think they will live well beyond the 20 year or 30 year term, but anything can happen. Are you willing to take that bet by paying more on ROP term insurance than a regular term insurance? I wouldn’t. I would rather get more coverage and pay less money on a regular term insurance than to get ROP term insurance. I would also invest my own money somewhere else than to bundle them together with life insurance.

    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.

    SOME ADDITIONAL FACTS:

    -The shorter the term on ROP term insurance, the more costly it is. A 20 year ROP term will cost 3 to 5 times more than 30 year ROP term because there is less time for the additional funds to grow (the additional funds is the difference between ROP term insurance and the regular term insurance).

    -Insurers tend to promote policies of 30 years as financially most sensible. But that’s a lengthy commitment many people may have trouble keeping. People are notorious for letting their coverage lapse because of changed family conditions, budget constraints, or the lure of a better rate at a different firm. Drop out early with a return-of-premium policy, and at best you’ll get back only a portion of your premiums–perhaps 10 percent after 10 years on a 30-year policy, building to about 35 percent or so by year 20. In the unkindest cut, if you do die your heirs will get the policy’s face value just as if you had bought the cheaper regular term.

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