Rivera

Is a Return of Premium (ROP) Rider Worth It?

Disability is expensive enough – why add return of premium?

return-of-premium-riderFor many people who are self-employed or who don’t have employer sponsored group disability coverage, buying a personal disability insurance policy is a must. This seems like a no-brainer, but most people are surprised at the cost of disability insurance when they purchase it privately.

Yes, disability insurance is more expensive than life insurance. Significantly more! Simply put, the chances of claiming a disability insurance policy for at least one period of long term disability in your working career are about 50%. That means one in two working Canadians will experience at least one period of disability, due to injury or illness, which keeps them off work for 90 days or more. And, if you’re off work for more than 90 days the average amount of time spent on disability claim is 2.9 years! Wow!

The #1 need is income protection

In this article we will discuss the cost/benefit analysis of having a return of premium rider on your disability insurance policy. That being said, the most important thing when buying disability insurance is to have enough income protection in place to ensure that your lifestyle and monthly bills are covered. After that we can look towards building value into a plan with pseudo-equity component which is the ROP rider.

You should never decide not to get disability insurance based on the cost of the ROP rider. This should always be considered an extra feature for those with more than enough disposable income to afford the option. Get income protection first – add value features after.

Is a Return of Premium Rider worth the cost?

There are two main insurance companies that offer a good return of premium rider on their disability insurance policies – Canada Life and Manulife. These riders are very similar. With Canada Life you can get back 50% of all your premiums once every 7 years. With Manulife you can get back 50% or 60% of your premiums once every 8 years.

The rules are simple. You must pay all your premiums over the time period. Secondly, if you have had any claims, the amount of your claim will be deducted from your return of premium amount before payout. So, if you have had a period of long-term claim it is most likely you will no longer qualify for a return of premium payment.

ROP rider on disability insurance is like having “insurance on your insurance”. In case you never get sick and never have a claim a portion of your total premiums will be returned to you, tax free. So, if you never get sick or hurt, and never make a claim, your actual cost for insurance goes down – by a lot!

If you do have a claim then the reality is you paid more for your disability insurance than another person with exactly the same coverage and no ROP rider. So, is it worth it?

ROP Rider Analysis

With just over 50% of Canadian workers NEVER having a long-term disability, then chances are slightly in your favour you will not make a claim (but still the risk is too high not to have disability insurance protection). Let’s take a look at two examples from Manulife’s 60% ROP option (the most expensive rider).

If our client is a 40 year old man, non-smoker with $6,000 of disability insurance, and assuming he is in an office job (class 3A occupation to determine disability insurance costs), his basic premium for a top of the line, professional insurance policy (Proguard from Manulife) would cost $238.41 per month.

If this same man was to take the ROP rider as an option, his premium would increase to $369.54 per month. The rider costs an additional $131.13 per month. No, let’s assume he never has a disability claim during his working career. In this case he would get back $20,530 after every 8 years. His premiums would therefore be reduced by 60%. His actual net premium payable is $155.69 per month. This is a significant decrease over the base premium of $238.41.

Now, let’s assume he did have one period of long term disability, wiping out one of his $20,530 premium returns over the course of him owning this policy. He will still receive back a total of $43,626. His total premium expenditure would be $106,428 (assuming a 2 year disability period where premiums were waived). His net premiums payable are $201.29 per month over a 24 year period. Still a discount!

ROP on Disability Insurance Worthwhile – If you can afford it

For those who have the financial resources to afford this rider, if can be a strong return on investment and protection for your long-term premiums in case you never get sick. I do suggest you invest your money firstly into RRSPs and a TFSA, as these long-term investments allow for tax-sheltered growth of funds and retirement income. Once you are maximizing these investments, you can build in a ROP rider onto your disability insurance policy to create some real value out of disability insurance – which has traditionally been a pure cost insurance policy.

Contact Life Guard Insurance today for a free, no obligation quote and analysis of your disability insurance needs and see whether or not a return of premium rider would be a wise invest for you.

December 24, 2014

Return of Premium on Disability Insurance Policies

Is a Return of Premium (ROP) Rider Worth It?

Disability is expensive enough – why add return of premium?

return-of-premium-riderFor many people who are self-employed or who don’t have employer sponsored group disability coverage, buying a personal disability insurance policy is a must. This seems like a no-brainer, but most people are surprised at the cost of disability insurance when they purchase it privately.

Yes, disability insurance is more expensive than life insurance. Significantly more! Simply put, the chances of claiming a disability insurance policy for at least one period of long term disability in your working career are about 50%. That means one in two working Canadians will experience at least one period of disability, due to injury or illness, which keeps them off work for 90 days or more. And, if you’re off work for more than 90 days the average amount of time spent on disability claim is 2.9 years! Wow!

The #1 need is income protection

In this article we will discuss the cost/benefit analysis of having a return of premium rider on your disability insurance policy. That being said, the most important thing when buying disability insurance is to have enough income protection in place to ensure that your lifestyle and monthly bills are covered. After that we can look towards building value into a plan with pseudo-equity component which is the ROP rider.

You should never decide not to get disability insurance based on the cost of the ROP rider. This should always be considered an extra feature for those with more than enough disposable income to afford the option. Get income protection first – add value features after.

Is a Return of Premium Rider worth the cost?

There are two main insurance companies that offer a good return of premium rider on their disability insurance policies – Canada Life and Manulife. These riders are very similar. With Canada Life you can get back 50% of all your premiums once every 7 years. With Manulife you can get back 50% or 60% of your premiums once every 8 years.

The rules are simple. You must pay all your premiums over the time period. Secondly, if you have had any claims, the amount of your claim will be deducted from your return of premium amount before payout. So, if you have had a period of long-term claim it is most likely you will no longer qualify for a return of premium payment.

ROP rider on disability insurance is like having “insurance on your insurance”. In case you never get sick and never have a claim a portion of your total premiums will be returned to you, tax free. So, if you never get sick or hurt, and never make a claim, your actual cost for insurance goes down – by a lot!

If you do have a claim then the reality is you paid more for your disability insurance than another person with exactly the same coverage and no ROP rider. So, is it worth it?

ROP Rider Analysis

With just over 50% of Canadian workers NEVER having a long-term disability, then chances are slightly in your favour you will not make a claim (but still the risk is too high not to have disability insurance protection). Let’s take a look at two examples from Manulife’s 60% ROP option (the most expensive rider).

If our client is a 40 year old man, non-smoker with $6,000 of disability insurance, and assuming he is in an office job (class 3A occupation to determine disability insurance costs), his basic premium for a top of the line, professional insurance policy (Proguard from Manulife) would cost $238.41 per month.

If this same man was to take the ROP rider as an option, his premium would increase to $369.54 per month. The rider costs an additional $131.13 per month. No, let’s assume he never has a disability claim during his working career. In this case he would get back $20,530 after every 8 years. His premiums would therefore be reduced by 60%. His actual net premium payable is $155.69 per month. This is a significant decrease over the base premium of $238.41.

Now, let’s assume he did have one period of long term disability, wiping out one of his $20,530 premium returns over the course of him owning this policy. He will still receive back a total of $43,626. His total premium expenditure would be $106,428 (assuming a 2 year disability period where premiums were waived). His net premiums payable are $201.29 per month over a 24 year period. Still a discount!

ROP on Disability Insurance Worthwhile – If you can afford it

For those who have the financial resources to afford this rider, if can be a strong return on investment and protection for your long-term premiums in case you …

December 15, 2014

The Dangers of Procrastinating When Buying Life Insurance

Procrastination Can Kill Your Chances of Buying Life Insurance

Life Insurance is here today, gone tomorrow

do-not-procrastinate-when-buying-life-insurance-300x193If you’re like most people, the idea of buying life insuranceseems like a chore – something that is easily put off until tomorrow. Well, for the procrastinator in all of us we know that tomorrow never comes. It’s a funny thing that we all put off important things for “another day”, especially when they seem uncomfortable or costly. Buying life insurance can be both – a discussion about what will happen to your family should you die prematurely and having to pay an ongoing monthly premium. There’s two good reasons to procrastinate when buying life insurance.

Unfortunately, this type of procrastination can lead to some very unfortunate outcomes. Let’s examine the two big ones.

Life Insurance gets more expensive as you age

Some people put off buying life insurance for years and years. I am presently going back and phoning some of the people who contacted Life Guard Insurance over 2 years ago requesting quotes and information. For those whom I never connected with or who never bought insurance, almost 50% never bought anything and are still “thinking about it”.

Every year you age life insurance gets more expensive. This is usually about a 4 – 5% increase of premium each year. When you’re young, and life insurance is relatively cheap, this doesn’t seem to make much difference. But, as you age these annual premium increases can far exceed your income growth and make life insurance unaffordable. Many people who wait too long to buy the life insurance they need often have to settle for a smaller amount of coverage because they just can’t afford the premium for the insurance they should have.

Let’s look at a 5 year delay in buying life insurance, and how big a difference it makes on premiums. For our example we will have two people, both male, both non-smokers, aged 30 and 60. The 30 year old needs $500,000 of coverage, and procrastinates in buying it for 5 years, while the 60 year old needs only $200,000 coverage and he too procrastinates for 5 years. They are both buying 20 year term policies.

30 Year Old – Premium today is $37.68 per month. At age 35 the same policy will cost $40.24. That is a percentage increase of only 6.8% over 5 years. Very low!

60 Year Old – Premium today is $209.88 per month. At age 65 the same policy will cost $314.28. That is a percentage increase of 49.7% over 5 years. The cost of waiting is Very High!

As you can see, the cost of procrastinating when buying your life insurance increases dramatically as you get older.

Life Insurance is bought with health, not dollars

The one thing most Canadians don’t realize is that life insurance can only be bought when you are health enough to qualify for coverage. If your health changes for the worse, like a diagnosis of cancer, there is not way you will qualify for life insurance coverage. It would be like trying to buy home owner’s insurance while you’re watching your house burn down. It’s just too late.

So many times I have been contacted here at Life Guard Insurance by a person who is desperately trying to find coverage after they received bad news from their doctor. And in every case like this the person has told me they always meant to buy life insurance, it’s just that they never got around to it.

There are two outcomes when you are diagnosed with a health condition:

  • 1. You will receive a rated policy, meaning you are no longer healthy enough for standard rates and must pay extra for your life insurance. This extra amount could be as low as 50% more and as high as 250% above standard rates.
  • 2. You could be postponed, meaning the diagnosis is too recent and the life insurance company wants to wait and see how treatment and/or recovery will look like in a year or two. The insurance company is not saying no, just not right now. They might still decline coverage in the future, but if things look good then they will likely offer a rated policy.
  • 3. You are declined for coverage, meaning you are now too high a risk for life insurance and the life insurance company will not take you. Most declines are permanent in nature, so the insurance company doesn’t want to ever see an application from you again.

This is why you should not procrastinate when buying life insurance. Firstly, the cost of life insurance automatically goes up every year you get older. Secondly, you might become uninsurable or be a rated risk and have to pay a lot more for coverage. Both scenarios are less favourable …

December 11, 2014

Did You Wake Up Excited To Buy Life Insurance Today?

I’m Excited to Sell Insurance. Are You Excited to Buy It?

Life Insurance: Probably not the most exciting purchase you’ll ever make

ExcitedI don’t think I’ve ever met anyone who rolled out of bed saying, “This is a wonderful day – the day I buy Life Insurance!” I know that your insurance broker (counting myself among the group of life insurance brokers) is probably a lot more excited about selling you a policy than you are about buying one. And not just because of the commissions he/she will earn on the sale. Your broker understands how proper financial risk protection can benefit a family, how permanent life insurance can offer “investors” a rich and tax sheltered cash value, and how a person’s and family’s future can go on, no matter what life throws at them. We brokers have internal rewards and motivation to sell life insurance policies – not just commissions.

Does buying life insurance make you feel good?

When you purchase life insurance it should make you feel safe, secure and confident you have protected the one’s you love. That should make you feel good. Also, setting aside financial worries, like worrying about what would happen to your family if you died, is also a relief. Once your life insurance is in place you can have peace of mind and those worries are resolved.

Still, getting life insurance isn’t an exciting purchase. It’s not like shopping for a new sports car, or booking that exotic vacation you’ve always dreamed of. Those things are exciting purchases – and they can bring real joy to your life. Unfortunately, life insurance just feels like another bill you’re paying for each month. Something that could be avoided if you turned a blind eye to the possible risks to your life and the financial reality your family would face without your support or income. You can choose to be without life insurance. Sure! I’m not saying it’s a wise thing to do – but you can go without it.

When your family claims on your life insurance policy, that bill suddenly become the wisest investment you ever made!

Being financially responsible has its own rewards

While the process of buying life insurance is not the most fun, the rewards of having a policy that protects your family are great. You know that the tax free money paid from your life insurance policy will be a HUGE relief to your spouse and kids if anything were to happen to you. You’ve set up a plan that will look after their daily needs for years to come, when you are no longer there to provide for them. Making sure the mortgage is paid off, bills are paid, food is on the table, money is set aside for emergency expenses, that children can go to college or university, and your spouse won’t have to sell the house to make ends meet is why we buy life insurance. It’s a good feeling! It’s your way of saying, “I love you and I will protect you.” even beyond the grave.

Now, let’s be prepared. Buying life insurance is actually a slow and sometimes annoying process. Here are the steps to go through before you have a policy:

  • Meet with an insurance advisor/broker and discuss the “what ifs” around your death and mortality
  • Have a paramedical exam – with needles, urine specimens, height and weight measurements, etc.
  • Wait about 6 weeks for the underwriter to make a final decision
  • Meet your insurance advisor again to accept your life insurance policy

Not fast, and not what most people would call A Good Time, but necessary. At Life Guard Insurance our advisors help take the stress out of this process. We can discover exactly how much life insurance you should have, find the most competitive premiums in Canada for you, keep you informed all throughout the underwriting process, and finally be your trusted insurance advisor for years to come.

Contact us today for a free, no obligation quote and/or financial needs analysis to see how much life insurance you need. We would love to help you and become your trusted insurance advisor.…