If you like the thought of taking out a phrase life insurance coverage to safeguard your family throughout the years they require it most, but hate the thought of putting money towards life insurance premium payments for 10, 15, 20 or 3 decades, you might be wondering about a term life product called return of premium life insurance coverage.
Return of premium life insurance, often called ROP life insurance, is exactly what it may sound like – a phrase life insurance coverage that returns your premiums at the end of the term. Not all life insurance companies offer ROP policies. But if you have in mind buying insurance coverage and becoming your monthly premium dollars back if you're still alive at the end of your ROP term, you might want to consider return of premium term insurance.
It may appear like ROP offers the best of both worlds – the chance to give a death help to all your family members if you unexpectedly pass away on your ROP term, and also the opportunity to get some of your monthly premium payments back if you are living whenever your life insurance coverage ends – but there are several downsides. For instance, a return of premium life insurance coverage is more expensive than the usual standard term life insurance policy.
Currently, Haven Life does not offer ROP policies because our internal research indicates that it's not what our subscriber base needs or is seeking. However, that doesn't mean you should not consider ROP insurance as you compare your lifetime insurance options. Is a return of premium life insurance worthwhile? It all depends on what you aspire to get free from your lifetime insurance plan – and what you're prepared to pay for.
What is return of premium life insurance?
Return of premium life insurance is a kind of term life coverage that returns your premium payments if you're alive at the end of your coverage term. Again, ROP life insurance coverage works exactly as the name indicates: as long as the insured outlives the term period, the insurance policy returns most or all your premiums paid after the term length – and you don't even need to pay tax on your windfall. This kind of coverage could be whether stand-alone policy or being an optional life insurance coverage rider on the standard term life policy.
So why don't we learn more rave reviews relating to this coverage option? While ROP insurance can be a nice fit for many families, it has some downsides making it one of the less popular types of term life insurance.
Pros and cons of return of premium life insurance
Here's a quick listing of the advantages and disadvantages associated with return of premium life insurance coverage:
- Get back most or all your premiums if you outlive the term duration and haven't let the policy lapse
- Premiums are returned income tax-free
- Premiums are often much higher
- No interest on the returned premiums
- If you enable your policy lapse, no premiums are returned
- Not available through all life insurance coverage companies or agencies
How much does return of premium life insurance cost?
Return of premium life insurance coverage is generally more expensive kinds of term life. This will make it a harder cost a lot of people, the ones who're thinking about ROP life insurance due to the premium benefit associated with the policy.
How a lot more is really a ROP policy going to set you back? Let's do some comparisons. According to State Farm, a 25-year-old woman in excellent health might pay around $51.77 per month for a 30-year, $250,000 return of premium life insurance coverage. That same woman would pay just $19.90 monthly for a standard term life insurance policy through Haven Life. That's a difference of $11,473.20 in premium payments within the lifetime of the insurance policy.
That's the large decision you are going to have to make when you're trying to decide between return of premium life insurance coverage and regular term life insurance – or when you're attempting to decide whether or not to give a return of premium rider to some term life insurance policy. Are the higher premiums that you'll pay around the ROP policy worth the benefits? Or should you get the term policy and use the cash you save to construct your emergency fund, contribute to your children's higher education or work towards another big financial goal?
How does ROP term life insurance rival a permanent life insurance coverage? A return of premium policy, as mentioned above, might cost a 25-year-old woman in excellent health around $51.77 per month for a 30-year policy with $250,000 in coverage. A $100,000 whole life insurance policy from Allstate, however, starts at $136.68 monthly – that's over twice as much money for less than 1 / 2 of the coverage.
Of course, a lasting policy has other advantages, which is why people are often prepared to pay higher premium payments to enroll in permanent life insurance coverage. In addition to providing life-long coverage (as long as you maintain your premium payments), permanent life insurance coverage has what is known as a cash value. This cash value could be withdrawn in the policy and used to cover retirement expenses, home remodeling, student education loans – literally anything you want. Variable life insurance policies and variable universal life policies even allow you to invest your lifetime insurance cash value, so it can grow along with the market.
Essentially, policies like permanent life and universal life offer the same promise as return of premium life insurance: the chance to make a move with your premium payments, whether you're saving up a cash value now or getting that premium money back in the future. Does which means that a return of premium policy is right for you? Certainly not.
Is return of premium life insurance coverage right for you?
If you're interested in return of premium life insurance, think about the next question: are you prepared to pay higher premium payments now for the potential for getting those payments back when your premium term ends? Since an ROP policy is a lot more expensive than a term life insurance policy, you need to ask yourself how much money you're prepared to put into your monthly life insurance coverage payments – and whether you and your loved ones are the best served if you put that money towards another financial goal.
Yes, the thought of getting part or all of your premium payments back at the end of your ROP life insurance term is of interest. Same with the thought of the cash value associated with a permanent life insurance coverage. But don't forget the actual purpose of life insurance coverage: to safeguard the folks you like by providing all of them with a death benefit in the event you pass away while they're still determined by your earnings or perhaps your financial contributions.
A term life policy solves this problem in a way that is both simple and affordable. You can choose the exact amount of coverage you'll need – maybe you desire a 20-year policy to cover the household until your children finish college, or you want a 30-year term policy to cover you and your spouse before the mortgage pays off. You may only need a 10-year term life policy since you got married later in life and are planning on retiring soon. You get to decide how much coverage you need and how long that coverage should last, which allows your policy to be as cost-effective as possible.
When you sign up for return of premium term life insurance, or when you make use of a life insurance coverage agent to set up a universal life insurance coverage, you're adding extra features to your life insurance in exchange for higher costs. For some people, those benefits count it – but there are hazards along the way that you might not be conscious of. For those who have an ROP policy and also you pass away during your return of premium term, your beneficiaries will get the death benefit related to your ROP life insurance policy but none of your premium costs will be refunded. Consider every potential scenario prior to making your decision.
Is return of premium life insurance right for you? Typically, people choose medically underwritten term life over a ROP policy because the premiums are lower and they might rather keep your extra money they'd have taken care of an ROP policy within their pockets. But for those who would like to get their premiums back, and are prepared to spend the money for higher cost, it could be a good fit.
Fortunately, there are lots of options with regards to life insurance coverage, creating a good fit feasible for all sorts of families in all types of situations. After some research, you can make sure you pick the very best kind for the family. If you are interested in a return of premium policy, get some quotes and discovering precisely what you can get for the money. Then get at least one traditional term life insurance policy quote as a reason for comparison. The easiest method to decide between ROP and term life insurance – or between ROP and a permanent policy – would be to compare the two life insurance coverage quotes side-by-side. Once you've got the numbers and the benefits before you, you'll have the information you have to see whether return of premium life insurance is worth it.