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Return of Premium Term Life Insurance (ROP Term)
Return of premium life insurance is a newly introduced term life insurance policy that provides both death benefit protection and a return of premium insurance feature.
It's simple to understand: If you keep your policy for the term period, at the end of that time whether 15, 20 or 30 years, the life insurance company that issued the insurance with the return of premium policy returns all of the premium that you paid for the insurance. There also is some partial return of premium for policies canceled before the end of the term (depending on the year it's canceled - the longer it's kept , the higher the amount of the return.)
Return-Of-Premium Insurance is aimed right at one of the greatest objections to traditional term life: "I am probably not going to die, and my money will have been wasted." When you buy insurance with a return of premium option, you do not have to waste your money. Unlike regular term policies, Return of Premium term life insurance rewards you for living by offering a guaranteed return of your total cumulative premium paid on the policy during the level term period, not including substandard (extra charges for health) and rider charges (extra benefits such as disability coverage), if any, which will be paid to the policy owner at the end of the level term period if the policy is then in force.
Here's an example: Male, age 35 with the best rate of preferred plus, $500,000 of 30-year return of premium term life insurance:
Annual premium = $865; Return of Premium after 30 years = $25,950 Instant Quote
($865 x 30yr = $25,950)
The life insurance return of premium is also income Tax Free, because you aren't receiving back more than you put into the return of premium life policy.
Although this is only a refund of premium without interest and not an investment, it is valuable. What would happen if you took the premium for the rider and saved it instead of adding the Return Of Premium Rider? Based on the current premium scale, in order to receive a cash payment at the end of the term period equal to the premium refund under the Return Of Premium Rider, you would have to allocate the additional funds elsewhere and receive an after tax annual rate of return of 8.85%
The return of premium term life insurance policies feature fully guaranteed level premiums for the first 15, 20 or 30 years and in some cases the life insurance can continue to age 95.
Material discussed is meant for
general illustration and/or informational purposes only and it is
not to be construed as tax, legal, or investment advice.
Although the information has been gathered from sources believed to
be reliable, please note that individual situations can vary
therefore, the information should be relied upon when coordinated
with individual professional advice.