Is there a low risk type of investment that can outpace an ROP life insurance's rate of return?

Question

Hi, I'm 34, f, non-smoker/healthy. Before hearing about ROP life insurance I was sold on a simple 30 year term life. But, however morbid as this may sound, I feel that all those premiums would seem wasted if I live beyond the 30 yrs. If the premium on a simple term life is $50/mo x 12mo x 30 yrs = that's $18,000 of money just given away. Now, say I pay $100/mo for ROP life, I'm going to get the whole $36K back. I'd love to go straight term and just invest the $50/mo myself, IF I just knew a type of investment that is mostly or all of the following:

1. It is low risk or risk-free

2. Low cost - about $50/mo

3. Will outpace ROP's rate of return (which, if my calculation is right, is $36K tax free if I outlive the policy and if I do not cancel before the term is up)

So what do you guys and gals think? To me, since I currently do not have an investment plan, and only have a few months before I turn 35 and the premium tier's increase, the Math makes sense. Unless I'm missing something.

Answer 1

You are on the right track to just but regular term and then invest the difference. Here are 2 things to consider:

1. You can most likely find a low risk or risk free investment in a high quality bond or bond fund that will give you a greater return than the ROP term would.

2. If you purchase the regular term then the catch is that you actually have to discipline yourself to still save the additional $50 every month. One advantage to the ROP term is that it forces you to be disciplined and save. Of course you can simply set up an automatic payment from your checking account to your investment account as well.

Either way make sure that you compare quotes and rates from at least 5 different life insurance companies to find the best rate.

Here is some more information ROP term:

Answer 2

You've done some good analysis and neither will be a bad choice, but just let me give you a few more things to consider:

1) Most ROP policies have very, very low cash values prior to the end of the term.  In other words, you are going to have to pay the premiums the full 30 years or else you will not come even close to the rate of return you are calculating.  Most other investments you can get to the money and realize a substantial return without having to wait 30 years.  I'm not saying that you can't do it, but just note the commitment you will be making.  

2) Remember that you are not throwing your term insurance premiums away.  That $50 per month is providing you protection and security.  You are trading a relatively small amount of money per month in exchange for not leaving those who depend on you financially destitute.  The only scenario where you would be wasting that $50 is if you didn't need life insurance in the first place and in that case you would be wasting $50 per month either way.

Answer 3

You are right on track with your thinking and so is the agent you talked to. His thoughts are lets give this guy some type of savings plan.

If you are really going to start and keep up the investment plan you only need a 4% return in a tax free account to beat the return of premium policy. The big question is if youkeep up the investment.

Just about any mutual fund can beat this and over a 30 year period just about any mutual will beat it and be very safe.

Your agent may also sell mutual funds ask him about an IRA.