Finally, another reason to live. A term life policy that offers a money back guarantee.
Who doesn’t love a guarantee? We sure do. And when it comes to life insurance with a guarantee, it sounds like a no-brainer. But this guarantee is not the scenario you might be familiar with. You know, the one where you or a loved one has to pass in order to receive benefits. Instead, this type of life insurance policy will pay your premiums back if you end up outliving your term.
We find that it’s a subject many people tend to avoid discussing, but understanding life insurance basics, like how to calculate life insurance, and how to make the most of the benefits it offers is essential. In this blog post we are going to discuss how you can use life Insurance as an investment strategy by leveraging a certain type of term life insurance policy, called a Term Return of Premium (ROP). We'll break down this type of life insurance product, the steps to determine the right coverage amount and explore various ways you can use the money from this type of policy if you end up outliving the term.
Before we dive in, a Term Return of Premium policy is a type of insurance policy that
Pays you back if you don’t use it after the term ends.
Pays a benefit your beneficiaries if you pass.
Provides additional coverage options for the future.
Allows for insurability with the opportunity to convert without a medical examination if you outlive your term policy.
It’s possible, it’s smart, and it’s something we are excited to talk about and share.
Some life insurance basics
There are a lot of different types of life insurance products out there, but to keep it simple we are going categorize life insurance options into two buckets. Term Life Insurance and Permanent Life insurance.
A term policy provides coverage for a specified term, typically 10, 20, or 30 years. It is generally more affordable but does not accumulate cash value.
Permanent Life Insurance offers lifelong coverage (up to 100 years) and may also include a cash value component that grows over time. Common types include whole life and universal life insurance.
The choice between these policies depends on your financial goals and budget. Term life insurance is ideal for those seeking affordable coverage for a specific period, while permanent life insurance can serve as both protection and a long-term investment. However, we find the best policy is the one that can offer you a guarantee.
Enter Term life insurance - Return of Premium (ROP)
This is a Term Life insurance policy with, essentially, a money back-guarantee. You get the same term coverage (coverage for a certain amount during a set period of time) but your premiums will be returned, minus some fees, at the end of the term, provided you are living at the end of the guaranteed term period you choose.
Example:
Liz is a 39-year old female in good health, and her children are 5 and 8. She knows she needs $2M in life insurance coverage now, but is unsure what she may need in 20 years.
In this example, Liz moves ahead and purchases a Term return of premium with a 20-year guaranteed period, Leah’s monthly premium would be $525/month with a preferred rating. At the end of the 20th year, Liz can choose one of the following:
Receive a refund of $128,400 for her base premium if she no longer has a need for life insurance.
Use that money to purchase a reduced paid-up policy with a death benefit of $354,00K and NEVER made another payment.
Convert to a permanent policy with an increased face amount without providing evidence of insurability. She will receive the $128,400; she can choose to keep the refund or use it to offset the cost of the new policy.
If Liz outlives her term and receives a refund, she plans help fund her children’s education. Other strategies you can consider is using the money to pay off debts, go on vacation, invest in the stock market, or donate the money to a charitable cause. The possibilities are endless.
How to calculate how much life insurance you need.
One of our favorite ways to calculate how much life insurance you may need is to multiply your annual income by 10 to 15, especially if you have dependents, to get an estimate for how much money you will need.
For example, if you make $150,000 per year, you likely need around $1.5 - $2M in life insurance coverage. We find most people choose to add an extra $100,000 per child to that estimate to account for each child’s education or make an added contribution for specific reasons. Other examples include: Estate planning and charitable giving
Other methods you can use to evaluate:
Add up the financial obligations you want to cover (such as income replacement, a mortgage) and then subtract assets that could be used by your family (such as savings or existing life insurance).
Use the DIME formula which stands for Debt, Income, Mortgage and Education to calculate ho w much life insurance you need to cover these four categories.
Replace your income, plus add a cushion to ensure that your family can maintain their standard of living and cover any unexpected expenses.
Working with a professional.
There are lots of things you will want to consider when coming up with your number and it’s best to work with a team of professionals you trust to get guidance and perspective. Your financial, legal, tax and insurance team can provide insights and awareness in each individual’s circumstance.
Work with us. How NaVella is different:
NaVella was created out of equal parts love and frustration with the insurance industry, its complexities, and the ever-evolving market space. We are on a mission to over deliver and work with the most exclusive high-value insurance carriers in the world.
With more than 17 years of experience in multiple facets of this industry, 1000+ insurance policies analyzed and reviewed, and hundreds of customized insurance portfolios crafted, we are dedicated to giving you control over what and how you protect what you care about most.
We are a woman-owned, progressive, independent insurance agency and consulting firm. We offer personal lines insurance solutions. Our product solutions include insurance for your: Home(s), auto(s), collection(s), Excess + Umbrella, boat, and term life. Our consulting and coaching services serve both personal and corporate clients. Headquartered in Massachusetts, and primarily focused on the Massachusetts and greater New England markets, we can write nationally.
If you’re ready to protect yourself now and in the years to come, please visit us at www.navellains.com, email us at hello@navellains.com, or call us at 617.399.3124.
Feel good about your insurance. Partner with us.