If the policyholder is still alive at the end of the policy period, return-of-premium life insurance (also known as ROP) reimburses all of the premiums.
If the policyholder dies while the policy is still active, the death benefit will be paid to the life insurance beneficiaries, exactly as it would be with a regular term life insurance policy.
WHAT IS RETURN-OF-PREMIUM LIFE INSURANCE AND HOW DOES IT WORK?
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Return-of-premium life insurance is available as a standalone policy or as a life insurance rider on a normal term policy. When purchasing return-of-premium insurance, you usually choose a term length, such as 20 or 30 years. Your beneficiaries will get the death benefit if you die during that time. If you live to a ripe old age, You will receive the same amount you paid in, with no interest. The money isn’t taxable because it’s a refund of your previous payments.
In contrast, if you’re still alive when your term life insurance policy expires, you won’t get anything back.
But, after all, everything has a cost, right? The money-back feature will cost you a lot more. According to Quotacy, a healthy 40-year-old male might spend $746 per year for a $100,000 return-of-premium policy with a 20-year term, compared to $145 per year for the identical policy without a return of premium.
BENEFITS AND DRAWBACKS OF RETURN OF PREMIUM INSURANCE.
Pros:
- You get your premium payments refunded if you live longer than the policy’s term.
- The money you get back isn’t taxed because it isn’t income, but rather a refund of the payments you made.
Cons:
- It is far more expensive than traditional term life insurance.
- To get your money back, you usually have to keep the policy for the entire period and make all payments.
- Other considerations for return-of-premium life insurance include:
- As a life insurance rider, the return-of-premium feature is frequently included.
- Depending on the policy, you may not receive any money if you cancel your coverage before the end of the term – or simply stop paying your premiums.
- You might be able to change a return-of-premium insurance to a permanent one without having to pay any further premiums.
READ UP >>>Reduced Paid-Up Insurance – All You Need To Know
WHICH FIRMS PROVIDE LIFE INSURANCE WITH A RETURN-OF-PREMIUM OPTION?
Return-of-premium life insurance is offered by several of the largest life insurance firms, as well as some smaller companies. Here are a few examples of what I’m talking about.
State Farm offers 20- and 30-year return-of-premium insurance products with coverage starting at $100,000.
Return-of-premium is available as a rider for 20- and 30-year term life insurance from Country Financial.
AAA offers Return-of-premium is available as a rider for 15-, 20-, and 30-year term life plans, with coverage amounts ranging from $100,000 to $5 million
ILLINOIS MUTUAL offers return-of-premium policies with maturities of 20, 30, or 65 years. Amounts of coverage range from $50,000 to $500,000.
Is life insurance with a return-of-premium worth it?
A conventional term life policy may suffice. The funds You can put the money you don’t spend on the return-of-premium benefit into an interest-bearing savings account or use it for something else. If you don’t spend the money and instead let it grow, you’ll finish up with more money than if you merely received your premiums back plus interest.
Make all of your payments on time and don’t cancel your policy if you want a guarantee that you’ll get back the money you paid in premiums. Otherwise, your policy’s return-of-premium benefit may not be paid out at the end.
ALSO, READ >>> What is the Catch with A Return of Premium Life
Methodology for calculating life insurance ratings.
NerdWallet’s life insurance ratings are based on consumer feedback, the National Association of Insurance Commissioners’ complaint index rankings for individual life insurance, and a weighted average of customer reviews. financial strength ratings averages, which show a company’s ability to pay future claims. We regard ease of communication and website transparency as part of the customer experience category, which looks at the depth of policy details available online. We converted the scores to a curved 5-point scale to determine each insurer’s rating.
These ratings are intended to serve as a guide, but we recommend that you shop about and compare numerous insurance quotes to find the best deal. NerdWallet is not compensated for any of its reviews. Please review our editorial policies.
