Whatever Happened to ROP Term??

[Robert Barney]

In asking for specifics, it appears I have created a new problem.

Anyway, let's take a looj at a real product, for a real premium, for a 35 year old male non-smoker in super-duper health.

If a 35 year old goes to Pruco Life for $500,000 of 20 year ROP term, the premium is 1,243.30. Now before anyone points out that there are cheaper products, yes there are. But I want to use a company which has a single premium no lapse UL product, so bear with me.

Anyway, if the insured pay $1,243.30 per year for 20 years, and doesn't die, the total premiums are returned at the end of 20 years, which is a total of $24,866.

Today, a male age 55 can take $24,866 and go to Pru and buy a single pay, no lapse UL product with a face amount of about $110,000.

On the other hand, Pruco is not all that competitive on the single pay no lapse UL, the least expensive being Aviva Life, who offers that face amount for $19,794.

Aviva could provide something closer to $135,000 of coverage for a premium of $24,293.

So, the notion that $23,558 can provide a paid-up policy of $107,000 is no stretch of the imagination at all.

And I should note that if a 55 year old pays $23,558 for a single pay, no lapse UL policy, the money does not vanish. Most of it instantly becomes account values, with a cash value equal to the account value minus any surrender charges.

This is no different than the good old days of dividends buying paid up additions. Ratios of coverage to cash of 4 to 1 were a conservative rule of thumb depending on the age.

 

[Cornelius]

That's the thing about the ROP. People have the choice of either taking the ROP and walking away or using it for a PUP with the original carrier. Of course if someone did reach the end of term it would be a good idea to shop around with the lump sum or maybe consider some LTC or a bass boat.

 

[Robert Barney]

Of course if someone did reach the end of term it would be a good idea to shop around with the lump sum...

No question about it. But if they are uninsurable, the ability to convert to a paid up policy makes complete sense, and to convert the rest if possible.

 

[0b1kanobee]

Does anyone know of a 40 year ROP?

Longest I could find is 35 years with American General.

 

[HoosierLife]

If at the end of the term they choose to keep the money from the ROP, is it taxed? And if so, I would assume based off their current tax rate?

Am I understanding reduced paid up correctly? Basically it's a single premium WL/UL policy? They would use the money from the ROP to fund this? Would the ROP monies be taxed before they were used to pay for the paid up policy?

What about using the money to fund an annuity? I'm just trying to figure out the best way to offer this product that would have the best tax advantage.

 

[Norwayguy]

If at the end of the term they choose to keep the money from the ROP, is it taxed? And if so, I would assume based off their current tax rate?

Am I understanding reduced paid up correctly? Basically it's a single premium WL/UL policy? They would use the money from the ROP to fund this? Would the ROP monies be taxed before they were used to pay for the paid up policy?

What about using the money to fund an annuity? I'm just trying to figure out the best way to offer this product that would have the best tax advantage.

ROP stand for Return of Premium. Can you think of any other time you have been taxed on a nongain in value? No the money is not taxed.

The taxation of the returned premium does not change based on what you initially put it in to but the new vehicle would have its own tax considerations if/when liquidated. If you are unsure of how it works you might want to bone up on it some more.

 

[WinoBlues]

If at the end of the term they choose to keep the money from the ROP, is it taxed? And if so, I would assume based off their current tax rate?

Am I understanding reduced paid up correctly? Basically it's a single premium WL/UL policy? They would use the money from the ROP to fund this? Would the ROP monies be taxed before they were used to pay for the paid up policy?

What about using the money to fund an annuity? I'm just trying to figure out the best way to offer this product that would have the best tax advantage.

At the end of the term period you have the choice of getting your base premium back or leaving all or part of it with the company in exchange for a paid up policy.

Example: United Home's ROP. At the end of 20 years a $75,000.00 ROP can become paid up $50,000. 00 to age 95 policy. You can also receive a portion of the premiums back and take a smaller RdPdUp plan. Or along the way APL if need be.

And what Peter said tax wise.
Lee

 

[richink]

A lot of people got out of rop because of interest rates but liberty bankers does one and I am sure there are others that do too.

 

[Robert Barney]

The following companies still have 30 year ROP

AAA Life
American Amicable
American General
Assurity Life
Cincinnati Life
Columbus Life
Fidelity Life
Grange Life
Illinois Mutual
Pruco
Reliastar (ING)
Transamerica
United Home
US Life

Many of those offer 20 year as well (and some 25).

 

[deadhead]

Liberty Bankers has a 20 term and Term to 70 that converts all premiums to an RPU = to all premium paid