Life Insurance

housefulJune 6, 2006

Is Return of Premium Life Insurance a new product? Does anyone know anything about this? My gut tells me it's a great deal for the insurance agent, but not so great for the client. I plan to stick with term, but my agent keeps talking about this ROP.

Also, I am 39; my DH is 41. Our youngest is only 2 months old. Want to know if we should get DH a brand new 20 year policy with double the coverage and scrap old 20 year policy that has 16 years left. Or just add a second 20 year policy with the same amount of coverage as the first. A brand new policy will be about $300 per year more than two separate policies. I really don't know how to decide if it's worth it for 4 extra years of coverage.

For me, it was actually cheaper to scrap mine and get a brand new one for double the amount. That is a no-brainer.

Any thoughts?

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brickeyee

If they only return the premiums paid you have lost money from inflation.
$100 now is not worth $100 in 10 years.

    Bookmark   June 6, 2006 at 6:24PM
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houseful

I agree. His rationale was that since it is tax free money, it is equivalent to making 8% on your money. Sounds good on paper, but in real life I could do better in a money market. Because if I die before the term, that premium is gone. At least in a MM there would be something left!

    Bookmark   June 6, 2006 at 7:02PM
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celticmoon

Beware the mysterious products. Return of Premium sounds a lot like the "vanishing" premiums of the universal whole life products 20 years ago.

BTDT. Long story short, premiums wouldn't vanish, requests for clarifications yielded only obfuscation. Fast forward to fortuitous class action suit when my box o documentation led to a quite healthy cash and stock settlement separate from the groups' pittance. BTW, premiums have since vanished and it does remain a piece of our financial quilt. Still not a product I would reccommend in most cases.

Know too that the selling agent pockets all profits at the start just for setting the hook. No motivation to supervise or maintain the policy whatsoever (hence the litigation) Ask your agent bluntly how his/her remuneration would occur with this new policy.

    Bookmark   June 6, 2006 at 11:29PM
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houseful

I realize that life insurance companies "got you comin' and goin'!" Term life is cheap but expires; then it becomes too expensive to afford when your old. Whole life is expensive so you can't get as large a policy as you want. I remember years ago that term had a bad rap, now it seems all the other kinds have a bad rap. It makes my head spin trying to decide what's best for our situation.

I feel hesitant about asking my agent what he makes on the different policies because he's a close friend of in-laws. I told my DH years ago I don't like doing business with friends, but he feels we should give business to friends. Although, if my agent keeps pushing it, I may get bold enough to ask at some point:)

    Bookmark   June 14, 2006 at 10:37PM
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steve_o

I feel hesitant about asking my agent what he makes on the different policies because he's a close friend of in-laws. I told my DH years ago I don't like doing business with friends, but he feels we should give business to friends. Although, if my agent keeps pushing it, I may get bold enough to ask at some point:)

I hear ya. I have one of those "universal life" policies because a friend of my (ex-)wife's was just getting into the business. :-p At this point, it's just as economically viable to keep it as it is to go term; the wasted money already is gone. I've come to the conclusion that business with friends is best performed at only the lowest-priced levels. And just as I would feel uncomfortable with the questions with which you're uncomfortable, I would feel greatly responsible if something bad happened to something expensive that I sold a friend. Better off to not even "go there".

    Bookmark   June 15, 2006 at 9:09AM
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quiltglo

We have universal policies and they have done very well. Our big amount of insurance is with term because we still have small children. Even though we are 50, we are able to get good policies through a national program for accountants.

I would always pick a universal over whole life. That said, I haven't compared companies since, again, ours are doing well.

Gloria

    Bookmark   June 15, 2006 at 4:42PM
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houseful

Steve, I don't know anyone that hasn't made some regretful financial decision. We learn from it but don't agonize over it.

This same agent sold us a whole life policy when we first married 15 years ago. It was only for $150,000 since that is all we could afford at the time. After listening to Dave Ramsey for awhile, we cashed it in after 12 years to buy term. I didn't know that the company would call the agent to tell him. Well, he called me and acted like I was crazy for doing this. This whole life policy was supposed to grow, but the cash value was just about exactly what we paid in over the years. So we didn't lose anything and remodeled our bathroom instead:)

BTW, what is Universal Life all about?

    Bookmark   June 17, 2006 at 12:44PM
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steve_o

Oh, I'm not agonizing over it. I kick myself a little because it's just not the way I prefer to do business, but it's not like worrying will get the wasted money back.

With a universal life policy, you have the option of how to invest a portion of your policy. That investment comes with the same risks any other investment has, though. You could get a higher rate of return than you would with a whole-life policy -- or you could end up doing no better or even a little worse. It all depends on your comfort level and your investment choices.

    Bookmark   June 17, 2006 at 3:11PM
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houseful

Sorry Steve, I didn't mean to imply you were agonizing over it. I meant people in general.

Thanks for the info. My agent had mentioned universal, but I had the feeling it was somewhat similar to whole so I didn't even ask more about it.

Now my DH brings home paperwork for the new insurance that his company will change to in July. I have to go do a search for threads on PPO vs. HMO:) More decisions!

    Bookmark   June 17, 2006 at 6:30PM
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