It sure would be great if you could return your life insurance policy and get a full refund just like when you buy some shoes or a TV. Unfortunately, you can’t – but you can opt for a return of premium life insurance policy!
Return of premium term life insurance provides shoppers the ability to buy a regular term life policy that refunds all of your paid premiums. For some shoppers, a return of premium (ROP) policy provides the perfect solution to their coverage needs. They want to buy a policy for a certain amount of time (term), but want the peace of mind knowing they didn’t waste all their money paying for a policy that they eventually outlived.
Return of Premium Life Insurance
What is return of premium life insurance? Let’s start out with a straightforward definition: A return of premium life insurance policy is a type of term coverage returns 100% of your paid premiums back to you if you’re still alive when the term expires. The returned premiums are refunded tax free and without interest. In other words, you get refunded exactly what you paid in premiums.
You must have paid all premiums and the policy must be in-force for the entire term. For example, if you bought a 30-year term and paid for 10 years – you wouldn’t get a refund at the end of the 30 years. In this example, you would have needed to pay your premiums for 30 years.
How Does It Work?
With regular term life insurance you typically buy a policy for 10, 20 or 30 years and the life insurance company keeps all those premiums. A term life insurance with return of premium, you’ll get every single dollar refunded back to you when your term ends. If you bought a 10 year term and paid $1000 annually, you’d get $10,000 back at the end of the 10 year term.
Be aware that you’ll pay a higher premium in order to have this benefit of having your premiums refunded to you. For the most part, you’ll spend approximately 30% more for a return of premium term policy compared to a regular term life policy. The return of premium option can be purchased as an entire policy or with a life insurance rider. Riders are a way to customize a regular policy for an additional cost. For example, some companies may not offer a ROP term policy, but they may offer a term life insurance return of premium rider to their regular policy.
Return of premium life insurance quotes
Use our return of premium life insurance calculator to calculate return of premium life insurance quotes here. You’ll be able to compare traditional term and return of premium term quotes instantly.
return of premium term life insurance pros and cons
Let’s take a look at what we like and don’t like about return of premium life insurance
Return of Premium Pros
- All of your premiums are returned to you if you outlive your policy’s term.
- Your returned premiums can be planned for and used on retirement, education, mortgage, investments, or any other financial goals.
- Peace of mind knowing your loved ones are protected if you die and satisfaction of receiving all your premiums if you live past the term length.
- Premiums are returned tax free.
Return of Premium Cons
- The cost of return of premium life insurance is more expensive compared to traditional term life policies.
- The policy must be in-force or active the entire time in order to get your money refunded.
- Interest is not earned on your returned premiums.
- Return of premium policies are not available with all companies and the term lengths are also limited based on your age.
- There isn’t a senior life insurance return of premium option. ROP is typically for younger ages.
How expensive is return of premium life insurance?
As we briefly mentioned above, you can expect to spend about 30% more when you buy a return of premium life insurance policy. Your rate and how much more will depend on a variety of factors such as the company you choose, your age, health, term length and coverage amount. Let’s look a some sample rates to compare.
As you can see from the example above, Mike would spend considerably more on a return of premium policy. However, at the end of 30 years, he could potentially get a refund check of over $53,010!
Best return of premium term life insurance companies
Did you know that there are over 800 life insurance companies in the USA? We’ve done the research and analyzed hundreds of the best life insurance companies. Here are our Top 3 return of premium term life insurance companies:
- AIG: American General (AIG) provides competitive rates with their AIG ROP Select-A-Term life insurance policy.
- Sagicor: Sagicor offers competitive rates and is also a great option if you’re looking for a no medical exam life insurance company.
- Prudential: Prudential return of premium term life insurance provides shoppers with a unique option with their 15-year return of premium policy. Prudential is also one of the biggest life insurance companies in the market.
Is return of premium life insurance worth it?
Since traditional term life is such a basic product, deciding on a return of premium policy will depend on a few things such as:
Opportunity Cost Factor
Your opportunity cost simply means calculation what is more beneficial: Buying term and investing the difference -or- buying return of premium life insurance. If you’re the type of person who consistently puts money away towards savings and investments – then a regular term life policy may make more sense. However, if you’re the kind of person who puts off investing or isn’t comfortable with it – a return of premium policy may offer you what you’re looking for.
Can you afford a Return of Premium policy?
Buying a return of premium policy is a long term strategy. If you don’t pay all of your premiums then you will not get your premiums returned. Make sure the added cost of a ROP policy is affordable and in line with your budget.
What happens if I cancel my policy?
If you let your return of premium policy lapse then you won’t get your premiums returned to you at the end of the term. LIMRA, a trusted financial services research organization, found that 1 out of 14 term life policy owners discontinue their life insurance payments every year. About ¼ of permanent life insurance owners let their policies lapse within the 1st three years and increases to around 40% after a decade. These statistics are a good reminder to make sure you can afford your policy now and in the future.
You’re Locked In
What happens if the cost of your return of premium policy gets to be stressful? What happens if you come across a much lower rate a few years down the road? Unfortunately…You’re stuck!
Often times we help people replace their more expensive traditional term life policy, but you can’t do that with ROP. If you shop around and cancel your term return of premium life insurance policy then the company keeps all of your premiums. You don’t get those back. Remember, you need to pay for the entire life of the term when you buy a return of premium life insurance policy.
Work with an Independent Agent Before You Buy
Return of Premium life insurance isn’t for everyone. It’s an excellent way to provide financial protection for your loved ones and it also provides the ability to get back all of the money you spent on your policy.
Just be aware that shopping for the best life insurance deal can be next to impossible on your own. You can spend hours trying to research the best rates and deals on your own and still not know. An independent life insurance agent can do all of this and more. Don’t waste time jumping from website to website and company to company. At Life Insurance Blog, we’ll do all the comparing for you! We have access to over 60 companies for our clients. We use the top 10 life insurance companies to make sure you get the best deal you can qualify for. We’ll help you from start to finish without any pushy sales tactics too!
Give us a call or contact us if you have any questions about return of premium or any other type of life insurance.