Return of Premium (ROP) Term Insurance is not something that just hit the streets.  It’s been available for a few years now, but I think this is a good time to remind our readership of how it works so that you can more firmly understand this product and determine if this is a life insurance option that might meet your particular needs either now, or in the future.

 

I cannot believe the number of people I speak with that ask a simple, yet alarming question about their life insurance. Paraphrasing these many comments they are basically asking: “you mean I’ve paid into this plan for all these years and it’s worth nothing?”  Clearly, their insurance representative did not take the time to explain ALL life insurance options.  This is fundamental to our firm.  We do a complete need analysis and ensure our clients know the difference between Term and Permanent life insurance. 

 

Traditionally, Term Insurance is pure insurance protection designed to cover a certain period of time, alas its name Term.  It doesn’t have a cash component.  It has not value unless you die.  Its major strength is that it provides maximum protection if you die early. It’s similar to your auto, homeowner’s, renters, and health insurance.  It only pays if there is a claim against the policy.  If your house burns down, you file a claim.  If your automobile is destroyed in the same fire, you have another claim.  Bingo… you get paid!   Unfortunately, you have to actually die to file a term life insurance claim.  While term insurance provides the opportunity to purchase the maximum amount of insurance at the lowest price, only a small percentage of these polices ever pay off.  People are living longer, beyond the “Term” and that is one of reasons these policies are so inexpensive.

 

By comparison, Permanent Insurance has a cash component.  This cash component performs a number of different functions.  First and foremost, it’s an investment in your future.  It keeps the premium from increasing when one gets older and the cost of insurance gets higher.  This type of policy is “permanent” because it is designed to last your entire life, unlike “term” which covers a certain period of time.  The cash component in these permanent plans provides tangible worth or value. This is an asset on your personal financial balance sheet.  And, you can borrow money against or pull money out of these plans. 

 

There are two types of Permanent Insurance Plans:  Universal Life and Whole Life.  While Whole Life provides more guarantees to the insured and less risk, Universal Life provides more versatility, but the insured assumes more risk.  Contact us for more information or if you have questions.

 

Now we have ROP Term Insurance.  Call this “the tweeter”… somewhere between pure Term insurance and Permanent Life Insurance.  This is for those who want something back after paying their premiums over an extended period of time.  Insureds pay a higher premium for these plans, but they get all their money back at the end of the “Term.”  If it’s a 30-year plan, the payback is considerably higher.  In fact, it’s maximized for that plan, and the full premium is refunded.  These plans also have various values at other periods which are lower than 30-year payback, but they haven’t paid as much into the plan.  So, it evens out.  The insured cannot borrow against this type of plan.  They can cash it in at some point and get that year’s ROP value; basically, the money they put into it with interest.   ROP term life insurance is a legitimate way to purchase term insurance, but don't ever forget, it's still term insurance with all the limitations and lack of permanence and flexibility of term insurance.  Yet, it does serve the need of those insured that want to realize the maximum protection features of term insurance while knowing that there is some tangible value in their insurance plan that they will get back.

 

Chuck

President Bush has signed the Worker, Retiree, and Employer Recovery Act of 2008, which includes a one-year suspension of minimum required distributions (MRDs) for 2009.

This has a potential positive impact on retirees taking distributions on their retirement funds. MRDs are normally required by law annually for anyone age 70½ or older who owns retirement accounts, including IRAs, rollover IRAs, SEP-IRAs, SIMPLE IRAs, and employer-sponsored retirement plan accounts.*

Although you can still take distributions from your retirement accounts for income, you are not required to do so for 2009. If you have already taken distributions after January 1, 2009 for your 2009 MRD but don't need the income, you can generally roll that money back into an IRA to the extent it qualifies as a 60-day rollover. You will need to do this within 60 days of receiving the distribution to avoid paying taxes.

If you need to take withdrawals from savings to cover planned expenses in 2009,  consider taking this money from non-retirement accounts first. This will allow assets in your retirement accounts to benefit from tax deferral. Now may also be a good time to revisit your retirement income plan and consolidate retirement accounts for greater control and convenience.

Rick

MARYLAND: The Maryland Insurance Administration's 2009 legislative package reflects its consistent theme of adding to or bolstering insurance laws to increase consumer protection. Its bills would: Amend the existing statutory loss ratio benchmarks in the individual market (60 percent to 80 percent), small group (75 percent to 85 percent) and Medicare supplement (75 percent to 85 percent group; 65 percent to 80 percent individual); prohibit rescission of an individual policy if the contract was issued without complete underwriting; and have the individual policy look-back and pre-existing condition requirements conform to the 6-month and 12-month requirements for group policies. Although no bill has been filed, the medical society intends to focus on increased reimbursement, including administrative services and electronic/telephonic communications; and protection from "punitive" action by third-party payers when physicians perform and charge members for non-clinical services.

The Washington DC Insurance Commissioner is warning residents who rent their homes to people attending the inauguration of President Barack Obama that their homeowners insurance may not cover any losses caused by renters.  The Department of Insurance, Securities and Banking (DISB) issued the warning in light of the number of District residents who intend to rent their homes to the estimated 3-4 million people expected to attend Obama's inaguration on January 20.

"DISB is contacting major insurance companies that underwrite homeowner's insurance to determine how they will adjudicate any claims emerging from rentals during the inauguration," Commissioner Thomas E. Hampton said in a prepared statement. "Most insurance companies may deny claims if the insured do not notify the insurance companies of risk changes in advance."  Hampton suggested that residents contact their insurance providers to find out what coverage may be allowed with renters in the home.

Source: Insurance and Financial Advisor, Volume II, Issue II, January 2009

For those of you familiar with our website, we hope you enjoy this new look. We are in the process of changing services.  Changes should be in effect on December 1, 2008.  This service gives us the simplicity we need, yet provides us much more flexibility and functionality. 

Mike