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Return of Premium life insurance, is it worth the extra cost?
Is a life insurance policy that pays back 100% of your premium dollars the best thing since sliced bread? Let’s see if a return of premium policy would be a good fit for you.
How does term life insurance work?
Return of premium policies create a boomerang effect for your premiums. Your premium dollars go out, but they can also return back into your wallet. The way conventional term life insurance works is about as simple and straightforward as you can get. You purchase a 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. Now, what happens if you do not die within that term period and you outlive the policy? The answer to this question is very simple, the life insurance company keeps all the premium dollars you paid in and the policy simply terminates. Unfortunately, you get nothing in return.
This is a very profitable scenario for the life insurance companies. Selling term 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 dime. Many people that 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 to take advantage of.
REMEMBER, Most People Outlive Their Term Policies!
Did you know that over 60% of the people that have term products outlive their policy? Many times, this is due to the most common problem of buying too short of a time period. The shorter the time such as 5, 10 0r only 15 years will drastically lower the premium. A large percentage of consumers make their purchase based on price alone. This can sometimes lead to a serious problem when someone’s policy expires and purchasing more at a later date will be prohibited by higher premiums or medical conditions.
What makes return of premium so different?
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 in essence purchasing a ROP rider which is added on to the standard base policy. If you own an ROP policy and you outlive the policies term period, you get all your paid in premiums back including the cost of the rider itself.
Do ROP 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 over 30% or more. If you are young and healthy, the odds are definitely in your favor for outliving your policies term period.
Do all companies offer these types of policies?
There are multiple carriers that offer these unique policies. ROP policies can be purchased with a minimum term period of 15 years and a maximum of 30 years. The companies with the most competitive rates are:
- Cincinnati Life
- Assurity Life
- Prudential
Cincinnati Life has the lowest premiums by far. 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 a death claim either of two ways. If the insured dies and also may have pay out the total premiums if the insured outlives the policy.
Using the concept of purchasing regular term and investing the additional cost
This philosophy dates back to argument of purchasing term life insurance vs. the permanent universal 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 to say the least and very rarely done.
In the seldom cases that 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 to paycheck and various investment vehicles many times are never considered or 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 extra 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 back in the end.
Compare ROP 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.
Final thoughts on these plan designs
Return of premium life insurance is not a perfect fit for everyone. Life insurance is 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 a licensed independent agent that specializes in life insurance.
This way you will get the professional help you need. Independent agents will make the shopping for the best plan design easy and straightforward. We are always here to answer any of your questions and helping you select the best policy for your specific needs and budget. Contact us today and let’s chat.
Make sure to download our free eBook and learn how to save money on your new life insurance purchase.
All the best,
Jack Venturi