For as long as people have been buying Long Term Care Insurance, they’ve been raising the objection, “What if I never need it?” Before we proceed any further, it’s worth reminding new agents that the question is moot. When you buy insurance, you don’t have to suffer an accident or incur a claim to “use” it. Your use is immediate and persistent for the duration of time you “transfer the risk” to your insurance company. In exchange for this transfer of risk, you enjoy a peace of mind your neighbors do not, and the ability to substitute small, certain payments for large, uncertain ones. This certainty allows insurance-holders to deploy financial resources in ways not otherwise available; thus, insurance is “used” in ways indirect and unseen.
Of course, few customers care to be schooled in Insurance 101. With little interest in insurance fundamentals, your clients may still object, “What if I never need it?” and await something more tangible from you in response. That’s where “Return of Premium Riders” come in.
As the name implies, such LTC Return of Premium Riders can be purchased at an additional cost, and trigger a full or partial return of one’s premium payments upon a given trigger event. Let’s review the most common types.
How Much Refunded
- Full Return of Premium: Returns ALL of your premiums. Usually the only premiums exempted are those which were previously “waived”—in other words, the policyholder never paid them because she was on claim.
- Return of Premium Less Claims: Returns ALL of your premiums, MINUS any claim payments paid, or payable.
- Graded Return of Premium: Returns a PERCENTAGE of your premiums, that decreases by an age-based schedule. The schedules vary from company to company, but most start at 100% and end at 0%.
What Triggers The Refund
- Death: The trigger event is death of the policyholder.
- Years In-force: The trigger event may be holding the policy in-force for 10 consecutive years, for example.
- Upon “Age”: The trigger event might be as simple as attaining age 65, for example.
- Some Combination of the Above: Most commonly, refunds are triggered when the policyholder dies “before age 65”, or dies “after the policy has been in-force for 10 consecutive years”. Only when the two conditions have been met is the Refund triggered.
Who Purchases Them?
Return of Premium Riders make an excellent component to Worksite (aka “Multi-Life”) sales. In such cases, the Employer paying for the plans of its Employees is able to add ROP’s to each of those policies, and when the Employees pass away, the premiums are returned to the company. This makes a compelling Employee Benefit since both parties’ interests are protected (although the Employer may owe taxes on the Return when it’s paid, to the extent any deduction was previously taken).
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