Return-of-Premium Term Life Insurance (ROP)
ROP policies are Term Life Insurance policies with a rider that says that at the end of the period the insurance company will return all the premiums paid. Who Might Consider Return Of Premium Life Insurance?
Return of Premium appeals to individuals who feel that living through a term policy is a bad thing. It sounds good to get all your money back at the end of the period (10 years, 20 years, etc.) but you need to know more before jumping into it. Life insurance carriers began offering return-of-premium riders on their term policies in the early 1990s as a solution to the “live-and-lose” dilemma presented by traditional term policies. As the name implies, this rider will allow term life insurance policyholders to recover all or part of their premiums paid over the life of the policy… if they do not die during the stated term and make the premium payments as due.
Return of Premium Does Cost More!
Of course, adding this protection will raise the overall cost of the policy. If you search using our Quote Engine and compare what a Term policy may cost vs. a ROP policy (see the example below), you will see that the increase in premium is significant. So the question becomes, am I getting a sufficient return on my money for what I paying extra for the ROP policy, or am I better off buying the term policy and investing the difference? This is not an easy question to answer and to a great degree it depends on each individual’s financial situation, including tax bracket and appetite for investment risk. You also need to know what happens if you decide to cancel the policy before the end of the period. Depending how early in the period you cancel, you may get a portion of the premius paid, or nothing or all.
More About Return on Your Money
When you buy a Return of Premium Policy, Return on Investment (ROI) is a factor to consider. Let’s take a look at one example:
As you can see, in our example the policy holder gets a 3.83% Annual Equivalent Rate of Return on the money spent on the life insurance policy. The assumption here of course, is that the insured lives past the term of the policy and made of the premium payments as due, which qualifies him/her to get back all premiums paid.
We Can Help!
If you would like to explore whether ROP life insurance is for you, Contact Us at your earliest convenience and one of our licensed agents will help you better understand this product. Also, do research it on our Quote Engine that appears on the right side of this page.
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