Life insurance is an essential tool for protecting loved ones against financial loss. but you may not like the idea of making years of payments on a policy that may never result in a payment (good news for you, not so much for your wallet).
Fortunately, one type of life insurance policy eliminates that possibility. Return-of-premium (ROP) term life insurance refunds all the premiums you paid if you’re still alive when the policy term ends.
Here are some factors to consider before committing to this type of life insurance policy.
how does the return of the life insurance premium work
See also: Adass
Return-of-premium life insurance is typically a type of term life insurance, meaning it sets a rate for the level term period, such as 10, 20, or 30 years. When the level term period ends, you can usually renew the policy every year, but at higher rates.
With a typical term life insurance policy, you pay regular premiums for as long as your coverage is in force. If you die during that time, your beneficiaries receive a life insurance payment known as a death benefit. if you are still alive when the tier term ends and you have not renewed the policy, there is no payment.
rop life insurance allows you to recoup those monthly premiums if you’re still living at the end of the policy period. Whole life insurance can be purchased already built into a policy or added as a rider to a regular term life insurance policy and is typically more expensive. If you outlive your coverage, 100% of the money you paid in premiums during the term is returned to you, tax-free. however, if you don’t make your payments or cancel your policy, you may not get a refund of your premium (exact rules vary by insurer).
A return-of-premium feature is also sometimes available on permanent types of life insurance. for example, throughout the country it offers a return of premium clause in one of its universal life insurance policies.
reasons to obtain a refund of the life insurance premium
despite a higher cost, there are some benefits to term life insurance:
- get your money back. if you survive the term of the policy, the money you paid in premiums is returned, which means there is no risk of losing money. however, you lose any profit you could have made by investing the money.
- forced savings. A rop insurance policy works like a forced savings account, ensuring that you will receive a large payment in the future. Even though it’s cash that’s already yours, not new money, it can be nice to know that you have some of your savings set aside for when you’re closer to retirement age.
- AAA life insurance: available in terms of 15, 20 or 30 years, with coverage of $100,000 and more.
- cincinnati life: the term fixer’s rop policy is available for 20, 25 or 30 year level term periods. minimum face amounts start at $25,000, based on your health classification.
- Financial Country: Available as a rider on 20 and 30 year term life insurance policies.
- llinois mutual: Coverage ranges from $50,000 to $500,000, and terms can be 20 years, 30 years, or up to 65 years.
- lincoln financial: available in termaccel and lifeelements in terms of 10, 15, 20 and 30 years.
- mutual of omaha: available in express term life in terms of 10, 15, 20 and 30 years.
- pacific life: available in pl term promise in terms of 10, 15, 20 and 30 years and pacific elite term in terms of 10, 20 and 30 years.
- protective: available in classic election term protective policies in term periods of 10 to 40 years.
- state farm: coverage amount starts at $100,000 and is available in 20 or 30 year terms.
return-of-premium life insurance policies
Here are some examples of return-of-premium term life insurance policies:
how much is the return of the life insurance premium?
Term life insurance is generally considered an affordable alternative to more expensive permanent life insurance options such as whole life insurance and universal life insurance. return-of-premium term life insurance is typically two to three times more expensive than regular term life insurance, according to policygenuis.
One of the main disadvantages of abandoning life insurance is that it basically provides an interest-free loan to the insurer. And if you factor in inflation, you actually end up getting less money at the end of the term, since the repayment doesn’t include any interest.
A better option may be to purchase a traditional term life insurance policy, then take the additional funds you would pay for a rop rider and place them in a safe investment account. Not only will you keep some cash, but you could also end up with more money at the end of the policy term by putting your money where it can earn modest returns.