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ROP - What is That? (Fall 2009) << Back
by George Y. Hirano, CLU
 
Term Life Insurance has the lowest premium for the amount of death protection if a person should pass away during the period insured.  Many young people utilize this type of policy to transfer the risk of dying to the insurance company who will pay the agreed amount to their beneficiary. This positive action on the part of the breadwinner enables their wife and children to meet the costs of mortgages, education and daily expenses without becoming destitute.
 
Some of our clients have asked us, “What happens if I live beyond the term of the policy, did I pay the premiums for nothing?”
 
For this type of Insured, a special ROP or Return of Premium rider can be purchased.  It stipulates that if the Insured outlives the policy period, the insurance company must return all premiums paid during the policy period.  In other words, what you had paid must be given back to you.
 
Would the Return of Premium Rider be worth buying?  As an example, we’ll use a 30 year term policy with a premium of $515 per year. If the Return of Premium Rider increases the premium by $260 per year, you will pay $775 per year for a total of $23,250 over the 30 year policy period.  At the end of the 30year period, provided you are living, you will receive $23,250 back from the insurance company. An investment of $260 per year (the cost of the ROP rider) must earn greater than 6.35% per year to accumulate $23,250 in 30 years. Under present tax law, the amount you receive is income tax free.
 
An interesting choice.
 
Your agent at AHTKY is available to further discuss this intriguing option with you.
   
   
   
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AHTKY Insurance Agency, LLC
1451 W. Artesia Blvd, Suite A, Gardena, California 90248
CA License: 0C46036