What is Return of Premium Life Insurance?

Return of Premium Term Life Insurance Will Pay Back All Your Premium Dollars

Statistics show that over 74% of consumers in America outlive their life insurance policies’ term period.

In short, Return of Premium Term Life Insurance is a term policy that returns all your premiums if you don’t die before the term period ends. The return of premium term life insurance (ROP) policies creates a boomerang effect on your premium dollars.

First, your premiums are initially paid to your insurance company to pay your premiums. Then, after your term period expires and you are still alive (like most do), every penny you spend over the years is returned to you in a big tax-free check. 

Suppose you purchase a return of premium life insurance policy and die within that term period. Your beneficiary will be paid the death benefit, just as any life insurance policy would. Insurance companies like term insurance because most people outlive the policy, and premium dollars become pure profit.

Term life insurance was always known as a “use it or lose it” policy until the insurance industry initiated the Return of Premium Policy designs.

 

Why Do So Many People Outlive Their Term Period?

Most people apply for a policy that is too short of a term policy over 70% of the time.

Most people outlive the term period of their policies. This is mainly because many consumers love lower premiums for shorter periods such as 5, 10, and 15 years. Most people need longer-term periods than these. Years later, their policy terminates, and they still need life insurance.

This has become a perfect 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 considerable profit for the companies. Return of premium policies can put your hard-earned dollars right back into your checkbook.

They usually don’t know and plan their life insurance program. Also, it can be used as a sales promotion for unethical financial planners. Some so-called Certified Financial Planners know less than their clients and promote the low price of shorter-term policy designs to make a more accessible sale.

They would rather have a sure deal promoting a low price than recommend their client apply for what they need. Financial planners are very good at this with their poor advice. Most financial planners are concerned about their financial success and not their clients.  Independent insurance agents are fiduciaries who protect their client’s best interests and know better than to do this.

How Much Life Insurance Do I Need?

How much life insurance you need is an essential question that you have to give serious consideration to. Being overinsured will only cost you higher premiums. On the other hand, being underinsured will not give your dependents the protection they need.

The most experienced life insurance experts recommend 7 to 10 times their annual income. So probably 90% of the time, the chosen face amount will depend on what the applicant can afford and not on statistics that are not realistic in the real world. I recommend only buying what you can afford, so the monthly premium easily fits your budget.

The last problem you want is to have your life insurance portfolio become a financial burden. Then you someday may have to terminate it, especially in a bad economy with high inflation.

 

How Does Return of Premium Life Insurance Work?

This is very simple and easy to understand; purchasing a return of premium life insurance policy gives you the advantage of not losing your hard-earned premium dollars if you outlive your term period. When buying these policies, you apply for a return of premium riders to be added to the standard base policy.

So, for example, if you own an ROP policy and outlive the policy’s term period, you get back all your paid-in premiums, including the rider’s cost.

 

What Kind of Policy Riders Can I Choose?

Many optional riders can benefit from your policy and provide a lot of extra value at a low cost.

The return of premium life insurance policy has already been implemented by one rider from the very beginning. This is called the return of premium rider, which changes the functionality of the term policy it is incorporated into. There are several other riders that you can also include in your new policy, such as:

Waiver of Premium Rider:

This is also referred to as a disability waiver of the premium rider 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. Remember that this type of rider and several others will slightly increase your premiums.

Disability Income Rider:

This is 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 your inability to work. This works in the very same way as a disability income insurance policy. This can be easily added to your return of premium life insurance policy as an additional benefit.

Acceleration of Death Benefits Rider:

This option is usually free and built into most good life insurance policies. However, this rider will trigger a cash benefit if you become terminally ill. If so, you can use it for expenses such as medical care costs from your illness.

This usually means being diagnosed with a terminal disease giving you 12 months to live. However, this number can sometimes be as high as 24 months in certain states in the US.

 

Do the Return of Premium Policies Cost More?

These policy designs do cost more simply because you have the opportunity to receive every dollar you pay. In many cases, these policies can cost nearly twice as much as conventional term policies.

If you are relatively young and reasonably healthy, the odds are definitely in your favor for outliving your policy term period.

If you purchase your ROP life insurance at a relatively young age, your premiums will be very affordable. Keep in mind that specific conditions can affect your premiums, just as with all life insurance policies, such as:

Your Age:

Your age always plays a massive 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 life insurance companies’ essential factors. The more medical issues you have, the more likely your rates will either go up or you could even be declined.

Your Occupation:

If you have a dangerous occupation, your rates can be affected. For example, hazardous jobs such as Iron Workers, Commercial fishermen, and Pilots, 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 ratings are more likely to trigger insurance claims.

Driving Record:

Your driving record reveals your respect for the law and your degree of responsibility. Unfortunately, the statistics indicate that people with poor driving records are more likely to have an auto accident, resulting in a fatality.

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. These medical concerns can be passed down through your genes. 

Policy Face Amount:

The larger the policy death benefit you choose, the more expensive your policy. The longer the term period you choose will also increase your premiums.

Tobacco Use:

Your rates will increase if you use tobacco products, primarily smoking cigarettes. Cigarette smokers usually pay about 300% more money in premiums. If you smoke, quit as soon as possible because it is a proven fact that tobacco use can ruin your health.

 

What Life Insurance Companies Offer Return of Premium Life Insurance Policies?

Not all do, but several top-rated carriers offer these plan designs. ROP policies can be purchased within a minimum period of 10, 15, 20, and 30 years. The companies with the most competitive rates are usually:

• Cincinnati Life – See Brochure
• Assurity Life
• Prudential
• AIG American General
• Mutual of Omaha

Cincinnati Life, Assurity Life, and Mutual of Omaha usually have some of the lowest premiums, but not in every case. Some 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 two ways.

Either by a death claim or by the insured outlives the policy and then returns all premiums to the policy owner. Unfortunately, some life insurance companies don’t appreciate the statistics they face for the return of premium life insurance products.

Like any other business, life insurance companies are looking for high profits, and the ROP policies are not as profitable.

 

Are There Any Downsides to R.O.P. Policies?

Some people may not always be able to afford the extra cost of these plans designs. If you die before the term period ends, your beneficiary will receive the designated face amount (death benefit) just like any other policy. They will not receive the additional cost of the ROP rider.

A lot comes down to the value you place on initially paying out more in premiums but having the advantage of receiving all your premiums back later.

The bottom line is if you can afford the additional premium cost. The return of premium life insurance policies can work out very well. When a conventional term life policy terminates, you receive nothing back whatsoever. 

The insurance companies that sell return of premium life insurance policies do not advertise them too much because they will likely be reimbursing their policyholder premiums one day.

 

How Can I Compare Rates for the Return of Premium Policies?

If you complete the form on the right or use our instant life insurance quoting tool, you will see a drop-down menu option for 15, 20, 25, and a 30-year return of premium plan designs. In addition, you can see just how the cost factor differs from standard term plans.

Getting all your premiums back at the end of the term is a great idea, but it comes at an additional cost and varies with each insurer.

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 for it in return. But, again, the statistics are in your favor!

 

Is the Extra Cost of Return of Premium Life Insurance Worth the Investment?

Whether or not a return of a premium life insurance policy is worth it 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 consider that you are getting back money you already paid into the policy. But, of course, the money was yours, to begin with, and at least your life was insured for that period. 

 

Examples of How These Policies Can be Beneficial

Here is an excellent example to help you understand the benefits of Return of Premium policies:

In this example, we will use a 35-year-old male who applies for a 20-year return-of-premium term life policy with a death benefit of $1,000,000. This applicant could easily have a low base premium of $750.00 per year with many competing companies.

Let’s now go to the extreme to say the additional cost of the ROP rider is the same as the base premium for a total of $1,500.00 per year. After 20 years, our 35-year-old male is now 55 years of age. He has paid $30,000 in total premiums.

Statistics:
His age of 55 years old and, using the statistics, indicates he should be alive and kicking. If he did not purchase the ROP rider, he would receive nothing but a stack of premium receipts. Due to the fact he bought the return of premium rider, he can expect a nice check in the mail for $30,000 with no tax liability attached.

Some financial planners would say he could have invested that extra premium for the ROP rider instead and would be making a nice profit.

Investing the Rest?
Some financial planners would say he could have invested that extra premium for the ROP rider instead and would be making a nice profit. However, if our example had safely invested that extra money in a money market or a CD with today’s low-interest rates, he would be generating less than 1% interest and then have to pay tax on that money.

It is easy to say invest the extra money, but it never usually works because talk is cheap, especially with a stockbroker or a Certified Financial Planner.

 

In Conclusion

Return of Premium Life Insurance is a great choice but not always the best choice for everyone. Life insurance is not a one size fits all products. Take your time and understand the many policy designs available to you.

We are always here to answer any of your questions and help you select the best policy for your specific needs and budget. Feel free to call us seven days a week. We are always here to help you. 

All the best,
Jack Venturi
708-334-6226

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If you have any questions about the Return of Premium Life Insurance plans, contact us today and let us help you at no cost or obligation. We are brokers and work for our clients, not the insurers. Our only goal is to help you get the lowest rates possible. You can also set up a time at your convenience to talk.

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