Get your Money Back if you Never get a Critical Illness!

Hesitating on the purchase of a Critical Illness insurance plan?

 

No need to hesitate any longer. If you have done your homework on the plan that is right for you, then not only can you receive invaluable coverage, but you can also get your money back should you end up living a healthy life.

 

This is especially good news for those who believe paying for insurance premiums are a waste of money.

 

When are premiums returned?

 

Not all plans are created equal. Requirements will vary from policy to policy, and each type of plan is built for specific requirements.

 

Below are several types of attractive return of premium (ROP, as referred to by the industry) structures and the corresponding types of clients they are most suitable for:

• 100% return of premiums anytime after 15 years
  This option is ideally suited for high income earners, such as professionals, executives, and business owners. This affluent client is rapidly building their wealth over the span of 15 to 20 years, but recognizes that a critical illness can jeopardize their efforts during the early years. This client controls how long they wish to keep the policy, and will be able to add a significant portion to their wealth upon policy surrender.
• 100% return of premiums anytime after age 65
  This option is great for everyone. The ideal client recognizes the need to protect their income and retirement fund until they retire, especially through the years of highest risk. As a reward for good health, the client is ultimately rewarded with a full return of premiums which can be added to their retirement fund.
• 100% return of premiums at policy expiry
  This option is ideal for low to mid-income earners. The only set-back is that you have to wait until age 75 (or 100 in some plans!) to receive a full return of premiums. If that's a problem, and you can afford higher premiums, then the previous option is a better choice.

Is Return Of Premium Worth It?

 

As you have probably already determined, the more favorable terms and conditions, the higher the policy premiums. You can also conclude that not having this option at all will mean lower premiums.

 

So, is it really worth it?

 

To answer that, let's review the following example:

 

Assume a sample critical illness insurance policy costs $100 per month for 15 years. The same policy with an aggressive return of premium option (100% return after 15 years) costs $150. Should this client pay the additional $50 to get all their money back?

 

The short answer is a resounding "YES"!

 

Let's see why:

• Without the return of premium, this client would pay a total of $18,000 in premiums over 15 years. This amount would be considered a total loss if a claim is not made.
• The client is most likely going to save $50 a month anyway. This represents a total capital of $9,000 over 15 years.
• Should the client wish to "recover" the full $18,000 by investing the difference ($50), he would require a GUARANTEED COMPOUNDED ANNUAL RETURN of 19.6%! There are no investments in the market that can guarantee such a return over 15 years. The best a GIC can do today is about 3.5%... a far cry from 19.6%.
• In other words, investing $50 a month and earning 19.6% every year for 15 years will yield a net return of $27,000, which is the full recovery of both the premiums and the original investment.
• Since this is not a realistic scenario, it is far better to pay the extra $50 for the full return of premium.

Wow! 19.6% return is unbelievable! This is called the internal rate of return (IRR) . It essentially describes the investment returns you would have to achieve outside of the policy to match what the policy has to offer.

 

Importance of knowing the Internal Rate of Return (IRR) of a plan

 

This is important because IRRs will vary by plan type. The longer the term, the lower the IRR. There comes a point whereby the IRR is no longer attractive to aggresive investors. For conservative to medium risk investors, it's always a good deal. Aggressive investors need to look for terms less than 20 years, or else they can invest their money elsewhere.

 

Moreover, it is important to compare products from different companies, because the IRR can differ for the exact same term! If the IRR is much less than that of a competitor, it means your premiums are too high and it's not a very good deal.

 

Final Thoughts

 

In virtually every case, the return of premium option is a very good deal, and can provide the final incentive necessary to buy a critical illness plan. No need to play the "what-if" game. Get the coverage you need and get rewarded if you live out a healthy life.

 

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Return to critical illness insurance education center.

 

 

 

Click a link below to jump to another related article:

 

What features should I look for in a critical illness insurance plan?

 

How much critical illness insurance do I need?

 

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