Life insurance carriers began offering return-of-premium riders on their term policies in the early

Life insurance carriers began offering return-of-premium riders on their term policies in the early 1990s as a solution to the "live-and-lose" dilemma presented by traditional term policies. As the name implies, this rider will allow term life insurance policyholders to recover all or part of their premiums paid over the life of the policy if they do not die during the stated term. This effectively reduces their net cost to zero if a death benefit is not paid. Of course, adding this protection will raise the overall hertz car rentals cost of the policy accordingly. In this article, hertz car rentals we'll take a look at a new form of policy rider that may be very attractive to investment-minded hertz car rentals individuals who are seeking the sensibility of term coverage . Weighing Costs and Benefits Let's take a look at an example of how to weight the decision of whether to sign up for a return-of-premium rider. Example 1 - Cost of Premium Vs. Benefit A 37-year-old nonsmoking male can get 0,000 of term coverage through AIG for 2 per year with a standard rating. If a return-of-premium rider is added on, the cost jumps to 0 per year, an increase of more than 0 per year. Without the rider, the policy owner will pay a total of ,860 over the life of the policy. The additional rider will thus bring the total cost of the term policy to ,400. Note : Quote given is for a 30-year, level-term policy for a 37-year-old male, 6\'3", 220 lbs, 6 points on driving record, nonsmoker, no medications, no diseases. For the analytically-minded, the inevitable next question is: will the recovery of this amount of money make it worth paying an additional $9,540 in the meantime? (To learn more about this, see Let Life Insurance Riders Drive Your Coverage and Understand Your Insurance Contract .) Opportunity Cost Analysis To find out whether the additional cost is worthwhile, you need to do the same type of analysis as used for deciding whether to purchase permanent insurance coverage or buy term insurance and invest the difference. To this end, the opportunity cost of adding the rider to the policy must be calculated using a reasonable set of assumptions.
Example 2 - Opportunity hertz car rentals Cost of Adding hertz car rentals a Rider Using the numbers shown in Example 1, if the additional 8 of annual premium hertz car rentals that is required to purchase the rider is invested in a stock mutual fund inside a Roth IRA , in 30 years the fund, will be worth a little over ,000, assuming an annual growth hertz car rentals rate of 10%. In this case the policy hertz car rentals owner would be better off investing the difference than adding the rider on to his policy. But this answer is deceptively simple hertz car rentals because this calculation doesn\'t consider hertz car rentals such factors as investor risk tolerance or the policy owner\'s tax bracket . What if the policy owner has a low risk tolerance, or his income is too high to allow him to contribute to a Roth IRA? If so, then he could invest the money in a taxable hertz car rentals certificate of deposit (CD) paying 5%. If he is in the 30% tax bracket, then this would grow to a little over $16,000 at the end of 30 years, after taxes. hertz car rentals Therefore, hertz car rentals if the policy owner outlives the coverage term, he will be left with the $16,000 hertz car rentals CD balance after investing a total of $26,400 ($16,860 for the policy and another $318 per year, or $9,540 total over 30 years into the CD.) This means that the return of premium rider itself would yield a higher overall return. (To learn more about risk tolerance, read Personalizing Risk Tolerance and Determining Risk And The Risk Pyramid .) Now, let's put this into perspective. In Example 2, $318 is spent every year for 30 years to recover a total of $26,400; this translates hertz car rentals into an annual tax-free rate of return of approximately 6.25%. This money is tax free because it is a return of principal. It is important to keep in mind that if the policy owner dies at any time during the term period, simply buying just the traditional term coverage and investing the difference will always provide the greatest return on capital, because in this case the policy owner's estate would not only receive the death benefit but can distribute the invested cash as well. Therefore, hertz car rentals if the policy owner feels that there is a substantial chance that he or she will not outlive the term, then the return-of-premium rider would likely be inappropriate. Conclusion Whether it is better to purchase the return-of-premium rider or invest the difference ultimately will depend upon the policy owner's investment risk tolerance, and his or her individual tax situation. For policy owners that can invest in tax-deferred or tax-free accounts and are comfortable investing hertz car rentals in the markets, a basic term policy without the rider probably makes more sense. Higher income, risk averse policy owners will probably find the return of income rider with its guaranteed rate of return more appealing.
Mark P. Cussen, CFP®, CMFC, AFC, has 20 years of experience hertz car rentals in the financial industry, which includes working with investments, insurance, mortgages, hertz car rentals taxes and financial planning. He has several years of experience as a financial author and has written numerous educational articles for various financial websites. He has also worked in retail, discount and bank brokerage systems hertz car rentals and is currently working as a financial planner for the U.S. military. hertz car rentals Mark has a Bachelor of Science in English from the University of Kansas and completed his CFP coursework at the Bloch School of Business at the University of Missouri-Kansas City in August of 2001.