The Best Insurance: ROP?

People ask me all the time, "What's best insurance?" I have a couple of answers to that. One is that it's like asking, "What's the best car?" It depends on how you plan to use it, what your budget is, how long you plan to keep it, etc. The best option varies from person to person, and can vary for each individual over the course of a life time. When I was 17, my 1975 Mercury Monarch (AKA "Blue Thunder") was the best option because could afford to pay cash for it, it had a rocking Pioneer AM/FM/cassette with Jensen coaxial speakers, and it ran. When I was in college and delivering pizzas, my 1981 Dodge O24 (AKA "Sherry")was my best option because it got great mileage and the black vinyl seats and carpet showed little of the spilled pop, pizza sauce, etc. My 2004 Dodge Dakota 4 door 4x4 I'm driving now (I'm so old and boring I don't even have a nickname for it) is my best option now because I can afford the payments more than I can afford to not be able to get to a client's home if I need to in the middle of a blizzard. It also works great for taking my family to my sons' out of town hockey and wrestling tournaments no matter what the weather. And no matter where I go I can always get "Outlaw Country" or "Hair Nation" or "Blue Collar Comedy" for myself, "'80's Pop" for my wife or "Radio Disney" for the kids on my Sirius satelite radio. But when the kids are gone, I'll probably be driving something much smaller that gets better mileage. So when asked about the best insurance, I first have to get to know the person, find out what they need, want, and can afford, then formulate the best plan to meet those wants and needs at the best possible price.

My other answer to, "What's the best insurance?" is the old cliche, "Whatever is in force when you need it." Even though that sounds like kind of a glib answer, it's true. Which is why I usually recommend a return of premium (ROP) if it's available. People keep it, so it's there when they need it.

ROP is most commonly used for life insurance. It's available on other products, but for this discussion I'm focussing on life. The principles apply to other types, however. This is a bit of an oversimplification, but basically how a ROP policy works is that you take out a policy for a set amount of time (term). If you keep making the payments until the end of the term, at the end the insurance company gives you the money back that you paid in. The premium cost is significantly higher than a straight term policy. They make their money on interest earned and by people cancelling before the end of the term.

On paper, there are several ways one can argue that other products are a better deal than ROP. However, I usually recommend ROP, because just like Communism and "friends with benefits" relationships, the concept and the way the real world works are completely different. I can show on paper that if you purchase a straight term life insurance policy, then take the difference in premium and invest it, the money you would have at the end of the term could be more if you hit the right investments, etc. However, in the real world, nobody does that. Instead of investing the difference, it gets spent here and there. Or in the rare cases it does get invested, it doesn't stay there. It gets pulled out to buy new tires for the car, Christmas presents, etc. Either way, at the end of the term, there's rarely a significant amount of money there. The same happens with loans and withdrawls when a person has a whole life or universal life policy. With ROP, you get a good chunk of money back at the end because you don't have access to the money until then.

Another advantage of the ROP is that you keep it even when times are tough. On a straight term policy, it's easy to let it lapse if you run across a tight spot. With a UL or whole life it's easy to let the cash value pay the premium, which causes the policy to "blow up" in later years. With ROP, you will keep it until the end of the term because you don't want to lose all the money you've put into it. Then it's there for the death protection, the real reason for buying a policy.

ROP is especially beneficial for those who aren't the best insurance risks. Yes, they are going to get charged a higher rate, but that also means they will get more back in the end. Instead of taking a trip to Chicago with the money they get back at the end of the term, they can go to Hawaii or Jamaica. It works especially well for those of us who say, "I know I need the insurance, but I'm going to wait until "someday" when I've lose 30 pounds and can get preferred rates. Unfortunately, as John Fogarty said, "Someday never comes".

If you haven't ever considered ROP, your action item is to call now to set an appointment to discuss "the best insurance".