Purchasing Return of Premium Term life insurance can be a wise investment for some people, but sometimes not for others. There are many types of life insurance products on the market today and each one has a specific purpose in mind. Life insurance is never a one size fits all type of product by any means and this is why I always analyze what form of life insurance would be the very best choice for my client to apply for.
Is Return of Premium life insurance going to be a good choice for you? Let’s run through the various specifics of this plan design to see if it will or not be the best way to for you to go.
First of all what is the actual definition of this policy design?
The basic name of this policy, Return of Premium means exactly what it says. You will receive a full 100% refund for all premium dollars paid if you outlive the term period of the policy. This money is also tax free when you receive it. Just think of a conventional affordable Term life insurance plan design with the incorporation of a special rider that is attached to the policy that pays back in the form of a refund any and all premiums you paid in since the policies inception when your policy first became effective.
That is basically it, so as you can see the concept of a ROP policy is very simple to say the least.
Does the Return of Premium plan design cost more than conventional Term insurance?
The answer to this question is yes it does and for a very good reason. The life insurance company has to invest your premium dollars so they may create a profit large enough to be able to afford to refund your money back after the term period if you outlive the policy and make some percentage of a profit in the process. In a tough economy like ours this is not always easy to do as in the past.
Let us use Prudential as a sample company for a 30-year-old male in a preferred rate class with a face amount of $250,000 with 15, 20 and 30 year term periods.
15-year with Term Return of Premium – $1,42.35 (without ROP rider) $260.00
20-year with Term Return of Premium – $738.00 (without ROP rider) $267.00
30-year with Term Return of Premium – $607.50 (without ROP rider) $305.00
1. If you notice 2 different changes are taking places with these premiums. The shorter 15-year Term with the ROP rider plan design indicates by statistics that the insured will outlive the term period and easily get all his money refunded.
- The 15-year ROP plan design only gives the company the least amount of time to build up a profit by investing the premium dollars which needless to say makes it harder for the insurance company to make a profit and then refund the premium back. The longer the term period the less the premium because the life expectancy statistics changes and goes more into the favor of the insurance carrier and then they have more time to invest the money.
Here are the 2 main reasons people want to purchase Return of Premiums Term life insurance products.
1. Applicants feel that they will outlive the term length of the policy and collect their refund.
2. Most applicants want to get their investment back instead of paying premiums every year and then to have the policy finally expire and they are now standing there holding an empty sack with nothing to show for it. This is how the insurance companies make their profits on conventional Term policies.
Pros & Cons of Return of Premium Life Insurance
*You can purchase a ROP life insurance policy and choose a term period that is best for your specific needs.
*ROP plan designs pay out on death benefits just like conventional term plans do.
*If you outlive the term period you get 100% of all your paid premiums back in one big check and tax free at that.
*ROP is a great way to go if you are young and can afford the extra premium cost and will likely outlive the term period.
*These plans are also great for buy/sell agreements with business partners.
*Return of Premium policies cost more than conventional Term policies.
*If you cancel the policy early before the term period you may not get your refund.
*If you are an exceptionally good investor you can make a nice profit with the extra money you would be giving the insurance company.
Is Return of Premium Term life insurance going to be a good choice for your needs?
You will want to contact an experienced independent life insurance professional to be able to answer that question properly. An analysis of your specific situation and budget will have to be reviewed to come to an accurate conclusion. Contact us 7 days a week for any information you need on the Return of Premium life policies. There is no cost or obligation for our service. We are always available to help you.
Thank you very much for reading our blog post on Return of Premium life insurance products. I hope you found it informative.
All the information provided in this article was contributed by Jack Venturi of BestChoiceLifeInsurance.com.
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