Although Return of Premium Life Insurance entered the insurance market with a “Bang,” the interest has begun to wane as many financial gurus condemn the product as being overpriced.
These gurus who opine regularly about the additional cost of the return of premium (ROP) are typically guilty of painting all insurance shoppers with a broad brush.
Ordinarily, their argument is that a policyholder could have invested the additional premium for the rider and done much better in the long term.
For many insurance shoppers, this may be true, especially for older adults who are typically just looking for the cheapest life insurance available. It may also be appropriate for savvy investors who are typically much more diligent when it comes to accumulating wealth through investing over time.
But, there is a large group of consumers out there who should consider return of premium term life insurance as a legitimate solution for purchasing low-cost life insurance and investing an additional amount of money at the same time.
The group of consumers being referred to here is hardworking young adults who simply do not have the time or diligence to grow their money using traditional investment products.
Here, we’ll discuss return of premium term life insurance and why it can be an investment product that can work for you.
What is Return of Premium Life Insurance?
First, we need to understand exactly what this insurance product is.
Certainly, most consumers are aware of term life insurance and understand that it is the most economical life insurance product available in the marketplace. The term “Return of Premium” is the name of a rider that can be added to a term life insurance policy for an additional premium.
What the Return of Premium (ROP) rider does is provides for the insurance company to return all of the premiums you’ve paid on your term life insurance policy if you outlive the policy term you selected. No, you do not earn interest on your paid premium and yes the insurance company does. Since the insurance company is earning interest on the cost of the ROP rider over a long period of time, they are willing to return the premiums you paid in.
And, by the way, returned premiums are non-taxable to the policyholder.
Here’s an Example of Return of Premium Term Life Insurance
Richard is a self-employed hardworking husband and dad who just can’t seem to save much of his paycheck for his retirement. He knows he needs to buy some life insurance to financially protect his family if he happens to die unexpectedly and has decided to speak with his agent about getting a term life insurance policy in place. Mark, his agent, after speaking with Richard about protecting his family and investing in his retirement talks to Richard about Return of Premium Term Life Insurance and how it may be the solution for financially protecting his family and saving for the future at the same time.
Here’s what Richard’s insurance agent proposed:
Richard’s agent suggested that he should buy at least $250,000 life insurance coverage and then add the ROP rider. The premium for the life insurance and the ROP rider would be $112 per month which Richard feels he can afford.
Since Richard is 30-years old, his policy would provide $250,000 in life insurance coverage for 30 years. If Richard should die during the policy term, his beneficiary would get the $250,000 death benefit tax-free (problem #1 solved).
If Richard is alive at age 60 (when his policy expires), he would get a check for $40,320 which is also tax-free (problem #2 solved). Richard could then invest the $40,320 in an annuity or other financial product and supplement his retirement income when he decides to quit working.
When we compare the consumers who buy return of premium term life insurance with those who don’t, we typically see a difference in the type of consumer and the age of the consumer:
- Those who buy term insurance with the return of premium rider are usually looking at a long-term solution to saving money on life insurance. Lets face it, 20 years goes by fast.
- Those who do not buy term insurance with the return of premium rider are usually looking to save as much money as they can on life insurance by choosing the policy with the lowest cost.
- The age of the applicant can also have an impact on who will or will not buy term life insurance with the return of premium rider because the rates are more affordable for young adults.
Here’s a comparison for two 40-year old healthy males for a $250,000 30-year term insurance policy:
Return of Premium Life Insurance Pros and Cons
Certainly, there are advantages and disadvantages with any type of life insurance product. Not because the product is flawed but because everyone has different needs that life insurance can resolve. Since the needs are different, the solution (the type of product) will be different as well. A return of premium life insurance policy is very appropriate in many cases but certainly not in all cases.
Advantages of Return of Premium Life Insurance
- If you should die while your return of premium life insurance policy is in force, your beneficiary would receive the full death benefit of the insurance policy. This would not be the case with other traditional investment products.
- Consumers who are not as disciplined as they should be when it comes to saving for the future are forced to save when they use ROP life insurance.
- You don’t have to die to get your money back.
- If you cancel your return of premium term life policy early, you will get cash back.
Disadvantages of Return of Premium Term Life Insurance
- If you elect to cancel your policy during the policy term, you would only receive a portion of your premium back. The returned premium would usually be less in the earlier years unlike Whole Life or Universal Life Insurance
- The cost for Return of Premium Term Life Insurance can get very expensive depending on your age at the time of purchase. Most companies start with an additional premium of around 50% that can easily increase based on your age.
- You will probably earn a higher return on the additional premium you pay for return of premium term life insurance if you invest in other traditional investment products. (You would however, be exposed to investment risk)
Is term insurance with return of premium for You?
Several life insurance companies offer return of premium term life insurance but the product can differ among different companies. This is when you can rely on us here at InsuranceQuotes2Day.com.
We represent all of the top-rated insurance companies and among them can find the best return of premium life insurance quotes.
FAQs for Return of Premium Term
What is return of premium term life insurance?
Return of premium term life returns the premiums paid back to the policy owner when the term duration is met.
Who offers return of premium term life insurance?
There are roughly 10 companies currently offering return of premium term life insurance. Assurity Life and Cincinnati life stand out as the best.
Do you get your money back at the end of the term period?
Yes. Once you reach the 15, 20, 25 or 30 year term life duration, you premiums will be refunded. You can also terminate your policy early and receive a reduced percentage of the premiums paid.
