Return of premium life insurance policies create a boomerang effect for your premium dollars. Your premiums initially go out, but if you outlive the your policies term period (like most do) they can return right back into your bank account. The conventional term life insurance policies work as a “use it or lose it” type principal.
If you purchase a return of premium policy with a specific term period and if you die within that time. Your beneficiary will be paid the policies face amount otherwise known as the death benefit. If you purchase a return of premium life insurance policy and outlive the term, you will be able to collect all your premiums back tax free if you are still alive.
Table of Contents
- Return of premium life insurance returns your premiums
- Why do many people outlive their term policy?
- How much life insurance do you really need
- How return of premium life insurance works
- Policy riders you can choose
- Do Return of Premium life insurance policies cost more?
- What carriers offer Return of Premium life insurance?
- What are the cons of purchasing a Return of Premium Policy?
- Comparing the rates of ROP and conventional term life plans
- Our Final Thoughts
Most people never even heard of return of premium life insurance. This is because their agents never informed them about all the other great policy designs available. Many agents are totally focused on conventional term policies and nothing else. There are quite a few life insurance products to choose from other than just term life insurance.
Outliving Your Term Period
Most people outlive the term period of their policies. This becomes a very profitable scenario for life insurance companies. The statistics show that over 70% of the term policies terminate while the insured is still alive and well. This creates a huge profit for the companies. Return of premium policies can put your hard earned dollars right back into your checkbook.
This is very common and is due to to buying too short of a time period. The shorter the time element such as 5, 10 or only 15 years, will drastically lower the premium. A large percentage of consumers make their purchase of term life insurance based on price alone. This can many times lead to a serious problem when someone’s policy expires. They may need to purchase more life insurance at a later date. But this may not be always possible because of higher age premiums or the onset of serious medical conditions to contend with.
This is a very important question that you have to give a lot of serious consideration to. Being over insured will only cost you higher premiums and being under insured will not give your dependents the protection they need.
Purchasing a return of premium life insurance policy (also known as ROP). Gives you the advantage of not losing all your hard-earned premium dollars if you outlive your term period. When you purchase these policies, you are actually purchasing a rider which is added on to the standard base policy. If you own a ROP policy and you outlive the policies term period, you get all your paid in premiums back including the cost of the rider itself.
A return of premium life insurance policy already implements one riders from the very beginning. This is simply called the return of premium rider which changes the functionality of the term policy it is incorporated into. There are a number of other riders you can also include on your new policy such as:
Waiver of premium rider
This is also referred to a disability waiver of premium rider also. In the possible event that you become disabled to the point where you cannot work and ultimately lose your income as a final result. This disability rider will allow you to stop paying your premiums until you finally recover without the possibility of your policy lapsing due to non-payment of premiums. Keep in mind that this type of a rider along with a number of others will increase your premiums.
Disability income rider
This is also another disability related rider that will provide you with monthly income payments. This is to replace your recently lost income due to being disabled from you not being able to work. This works in the very same way as disability income insurance policy. It can be easily added on to your return of premium life insurance policy as an additional benefit.
Acceleration of death benefit rider
This option is normally free and built into most good term life insurance policies. If you ever become terminally ill, this rider will trigger a cash benefit if so you can use it for expenses such as medical care costs from your illness. This usually means being diagnosed with a terminal illness giving you 12 months to live. This number can sometimes be as high as 24 months with certain states in the US.
These policy designs do cost more simply because you have the opportunity for the return of every dollar you paid in. In many cases, these type of policies can cost quite a bit more. If you are young and healthy, the odds are definitely in your favor for outliving your policies term period. Keep in mind that specific conditions can affect your premiums such as:
- Your Age: Your age always plays a huge part in determining your premium. The older you are when you apply, the higher the premium will be.
- Health History: Your current health is one of the most important factors the life insurance companies consider. The more medical issues you have, the more likely your rates will either go up or you will be declined.
- Your Occupation: If you have a hazardous job, your rates can be affected. Dangerous jobs such as Iron Workers, Commercial Fisherman and Pilots just to name a few can increase your rates.
- Credit History: If you have poor credit, your rates can be affected. Historically the statistics show that people with poor credit rating are more likely to trigger insurance claims.
- Driving Record: Your driving record clearly reveals your respect for the law and your degree of responsibility. People with poor driving records are more likely to have an auto accident which can result in a fatality.
- Your Family Health History: A history of cancer, heart disease and early death (before age 50) can cause your rates to increase. This pertains to your parents and siblings. These medical concerns can be passed down in your genes.
- Policy Face Amounts: The larger policy death benefit you choose, the more expensive your policy will be. The longer the term period you choose will also increase your premiums.
- Tobacco Use: If you use tobacco products especially smoke cigarettes, your rates will go up. Cigarette smokers usually pay about 300% more money in premiums.
Not all do, but there are several top rated carriers that offer these plan designs. ROP policies can be purchased with a minimum term period of normally 10, 15, 20 and a maximum of 30 years. The companies with the most competitive rates are usually:
- Cincinnati Life
- Assurity Life
- AIG American General
- Mutual of Omaha
Cincinnati Life usually has the lowest premiums but not in every case. Some of the other life insurance companies do not offer these policies because the profitability statistics are not as good as standard term insurance. In this case, they may have to pay out in two different ways.
Either by a death claim or by the insured outliving the policy and then returning all the premiums back to the owner of the policy. Some life insurance companies don’t appreciate the statistics they are faced with return of premium life insurance.
Some people may not always be able to afford the extra cost of these plans designs. If you die before the policy reaches its final term period. Your beneficiary will not receive the additional cost of having the ROP rider.
A lot comes down to the value you place on paying out more money in premiums initially. But having the advantage to receive all your premiums back in the end.
The bottom line is if you can afford the additional premium cost. The return of premium life insurance policies can work out well for you. When a conventional term life policy terminates, you receive nothing back whatsoever.
If you complete the form on the right, you will see a drop-down menu choice for 15, 20, 25 and 30-year return of premium plan designs. You can see just how the cost factor differs from standard term plans. Getting all your premiums back at the end of the term period is a great idea, but it does come at an additional cost.
Check and see if these plans fit your budget. If so, you may be able to receive a nice check in the mail someday instead of simply paying out premiums with nothing to show in return.
Is the extra cost of ROP life insurance worth it?
Whether or not a return of premium life insurance policy is worth it to you will depend on your specific financial situation. Receiving a check with no income tax liabilities would be very nice to say the least especially if you are at retirement age.
But you have to take into consideration you are actually getting back money you already paid into the policy. The money was yours to begin with. But at least your life was insured for that term period and you will recover all your premiums back.
Return of Premium life insurance is not always the best choice for everyone. Life insurance is definitely not a one size fits all product. Take your time and get to understand the many types of policy designs available to you.
We are always here to answer any of your questions and helping you select the best policy for your specific needs and budget. Feel free to call us 7 days a week! The only thing we don’t offer is pushy sales people, we leave that to our competitors.
All the best,
We are here to help you at no cost or obligation. Take a moment to set up a time to discuss your life insurance options and become a smarter life insurance shopper.