Return of premium life insurance can be the best thing since sliced bread, let’s see if it is right for you!
Return of premium policies create a boomerang effect for your premiums. Your premium dollars go out, but they can also return right back into your wallet which is a great feature to have. The way conventional term life insurance functions is similar to a “use it or lose it” type of situation. You purchase a policy with a specific term period and if you die within that time period. Your beneficiary will be paid the policies face amount otherwise known as the death benefit.
Most people outlive the term period and when this happens. This becomes a very profitable scenario for life insurance companies. Selling term products is the most profitable form of life insurance sold by the insurers today. The statistics show that over 70% of the term policies terminate before the carrier ever has to pay out a single dime. Many people who have these policies quit paying the premium for a number of various reasons. Many people let their insurance lapse to free up more money to spend. This creates more profit for the companies.
Why do most people outlive their term policies?
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 sometimes lead to a serious problem when someone’s policy expires. They may need to purchase more 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
Other problems may also come into the picture such as gaining weight with age. This is very common with people as they get older and slow down on exercise. Another reason may be getting involved with a dangerous sport.
How much life insurance do you really need?
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. You can use our simple face amount calculator to get a very good idea of where you need to be choosing a death benefit dollar amount.
How Return of Premium life insurance works
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.
Riders you can choose from
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.
Do return of premium policies cost more?
These policy designs 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. If you can afford the increase in premium, this type of policy may be just the ticket for you. Use our quoting system to compare return of premium life insurance quotes from a number of excellent insurers. Always remember that there are many conditions that can also effect 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. Like I always say “if you need life insurance, don’t put it off”. It will only become more expensive later on when you do eventually apply.
- 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 height and weight is also critical decision maker.
- Your Occupation: If you have a hazardous job, your rates can be effected. Dangerous jobs like Iron Workers, Commercial Fisherman and Pilots just to name a few can increase your rates.
Here are a few more to consider!
- Credit History: If you have poor credit, your rates can easily be effected. 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 60) 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 can go up like a missile. Cigarette smokers usually pay about 300% more money in premiums.
Do all companies offer these types of policies?
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
- Prudential
- 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.
Compare return of premium life insurance quotes with conventional term products
To fully understand the cost difference between return of premium life insurance policies and traditional term plan designs. You can review the cost these two plan designs with our instant life insurance quoting system built into our website for your convenience. This is the only way to get the full effect of the cost between a conventional term life insurance plan when compared side-by-side with the return of premium version.
The concept of purchasing conventional term and investing the additional cost
This philosophy dates back to the argument of purchasing term life insurance vs. the permanent whole life insurance plan designs. By far, the majority of Americans never “invest the rest” in any way shape or form. The idea sounds good but usually never works out. This was a good line used by financial planners to make themselves look intelligent and impress their clients. In the real world, it was a pipe dream and very rarely done.
In the seldom cases, an individual is more disciplined when it comes to saving or investing money, it can work very well. A lot of families today live from paycheck too paycheck and various investment vehicles many times are never utilized.
What are the cons to these types of policies?
Some people may not be able to afford the extra cost of these plans designs. Also, if have to remember that if you die before the policy ends. Your beneficiaries 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 to advantage to receive money 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.
Compare return of premium rates and see for yourself
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 will be able to receive a nice check back in the mail instead of simply paying out premiums with nothing in return.
Is the extra cost of return of premium 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 nice 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 placed into the policy. The money was yours to begin with but at least your life was insured for that term period and you recover all your premiums back.
Our final thoughts
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 life insurance products available to you. Take a minute to reach out to an experienced independent insurance agent such as ourselves that specialize in life insurance. This way you will get the professional help you need. 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 sales pressure and pushy sales people. We leave that department up to our competitors.
All the best,
Jack Venturi
*We are here to help you with no cost or obligation. Take a moment to set up a time to discuss your life insurance needs.
