Is Return Of Premium Term Life Insurance Right For You?
Perfect for someone who wants a savings plan and have their premiums returned if they outlive the policy.
Premiums can range 3-5x more that a standard term policy and premiums do not accumulate interest.
Who It Is Best For
Return of Premium (ROP) polices work best for people who have a hard time being disciplined in savings strategies.
Return of Premium: Insurance and Savings Combined
As a hidden gem in the term life insurance world, Return of Premium term life insurance policies provide a way to recoup premiums that you would have otherwise lost to the insurance company during the time you had coverage through them.
Times change and so do the financial behaviors and needs of our clients. While many have the discipline needed to execute very detailed financial plans, others find it extremely difficult to maintain the behaviors needed to obtain stronger financial security. A Return of Premium term life insurance policy can be a key component in your overall financial security plan.
Return of Premium term life insurance policies may not always be the best fit for every person, but for those who want their money returned to them at the end of their term to apply it to retirement or debt, it makes a great solution. These policies do tend to run 4-5 times more expensive than a standard term life insurance policy with the biggest difference being that regardless of whether you outlive the policy or not, there is money coming back to you.
Generally speaking, it would make better sense to get a standard term policy and then look into investing the difference into other avenues for retirement; however, many Americans just don’t have the discipline or the knowledge needed to make these highly intricate decisions and policies like this force the customer to save for the future in a guaranteed, stable option like a Return of Premium policy.
Is It The Best Option For You?
Not sure if this type of policy makes sense for you?
Don’t feel bad, no one better understands the complexity of life insurance like your personal shoppers at True Blue. A Return of Premium term life insurance policy may not be the best option for you when another type of coverage is a better fit for you. Our job is to answer your questions and help guide you into a product that makes the best sense to you based on your budget and need with no pressure sales and customer focused service, all with your best interest at heart.
Real Questions About Return Of Premium Life Insurance
What Is Return Of Premium Term Life Insurance?
Return of Premium Term Life Insurance is a product that allows you to recover all or part of the premiums you pay to the insurance company in the event you outlive the policy. With a standard term life insurance policy that you outlive, the insurance company keeps all the money as profit.
Is Return Of Premium Term Life Insurance Taxable?
Typically no, because it is a refund on all or some of the premiums paid and not an interest generating investment. It is very similar to paying rent on an apartment for 20 years and getting all your payments back in one lump some.
How Does Return Of Premium Term Life Insurance Work?
With a typical term life insurance policy, you pay your premiums for the coverage provided by the insurance company. At the end of the term, the money you pay in becomes profit for the company if you outlive your policy. Typically, only 2%-3% of term insurance policies pay out and insurance companies make their money off not having to pay out the death benefit by using the odds of you outliving the policy or surrendering/ letting it lapse. They then invest those premiums in different investment pools to generate more income for the company to pay claims and fund business operations.
A Return of Premium policy ensures you get all or some of the money you paid in back as a refund for not using the policy; however, this option also comes with a higher premium payment since the insurance company will have a shorter period of time to maximize the profit potential of the premiums paid in.
Is Return Of Premium Term Life Insurance A Rider On A Normal Policy?
In almost every case, yes. Riders are “add ons” to a life insurance policy that provide extra coverage. If a company offers a return of premium then you will usually see it under an additional riders section.
Why Is Return Of Premium Term Life Insurance More Expensive?
Since insurance companies will lose the premium paid in as profit on a Return of Premium policy, they charge a higher amount to be able to invest where they need to and offset the loss of funds if you outlive the term of the policy.
Which Is Better Choice: Return Of Premium Term Life Insurance Or Whole Life?
This is largely an “apples to oranges” comparison. While there is a large amount of disagreement inside the world of financial and insurance professionals on both of these products, each option provides some level of positive and negative characteristics and is largely dependent on the needs of the client.
One major advantage whole life has is that, while premiums for both products are much higher than a standard term policy, whole life provides protection for your entire life and potential dividends from these polices can build you cash value quickly and accumulate amounts greater than the face value. Return of Premium is just that, you get your money back at the end of the term with no interest. If you factor in the inflation rate over 20 years, the premiums you get back will have less buying power than the same amount today.
Is Return Of Premium Term Life Insurance A Good Choice?
Occasionally a return of premium policy is a good fit for a customer, especially if the customer has a hard time with being disciplined in saving and investing money and doesn’t mind paying extra to get their money back. The majority of people we talk to are better off buying a standard term policy and putting money into other investment vehicles to get a higher return on their money.
What Is The Best Company That Offers Return Of Premium Term Life Insurance?
One of the best companies currently offering Return Of Premium Term Life Insurance is AIG American General. Through their ROP Select-A-Term policy, you get the benefit of your premiums being refunded if you outlive the term and you can customize the length of time you you want the coverage for. Learn more about AIG American General here.