Return of premium term life insurance is a great choice for young people, who feel they will live forever. Many younger clients considering life insurance often ask us, what happens to my premiums if I do not die during their initial term period?
If you do not have a claim the premiums for term life insurance polices are considered the cost of insurance and are kept as profit by the company. However, there are term life contracts which offer a return of premium rider which guarantees all your money back at the end of your policies term.
For an additional cost, a return of premium rider (often called ROP life insurance) can be added to basic term life, to refund all your premiums at the end of your term. This differs from basic term life that provides no money back if you do not die within the selected term period. Return of premium term life insurance provides a living benefit and, if you are still living at the end of the term period, 100% of your paid premiums are guaranteed to be returned to you tax free.
The cost for the return of premium rider should be compared to basic term life to determine if the extra premium is worth paying to have your money refunded. This decision ultimately will depend upon the client’s investment risk tolerance and tax bracket.
Clients with available tax-deferred accounts and who are familiar with investing should probably consider a basic term policy without the rider. Wealthy people with higher incomes, who are more risk averse may find the return of premium rider as an attractive option.
Return of premium term life insurance costs more then pure term life insurance and is less expensive compared to permanent or whole life insurance products. Depending on your age and needs at the end of your term, the refund can also be applied towards converting your term to permanent coverage.
Should You Consider Return of Premium Term Life Insurance?
- If you are feel you may outlive the term of the policy
- You would like your investment back instead of paying in and receiving no benefit
- You can afford the return of premium rider (20-30% more then term)
- If you are in a higher tax bracket
- If you have have a low risk tolerance for investing stocks and bonds in the market
- You do not want to pay the extra cost required for permanent coverage
- You may need permanent coverage in the future
The premiums you pay for return of premium life insurance will ultimately depend on their overall health. The actual price for ROP life insurance is based on many personal factors like height, weight, medical background, and family history.
Return of premium term life is usually more suitable for young people looking for a long term saving plan combined with life insurance.
Affordable Life USA expedites the underwriting process by shopping your policy with multiple insurance companies. If you would like to simply compare ROP term life insurance rates with a return of premium rider use Instant Life Insurance Quotes.
We can also prepare an illustration using our “Return of Premium Calculator”. This analysis will provide you the cost of term life compared to return of premium life insurance. Then, an internal rate of return of the additional premium will be conducted to determine if the extra premiums are a viable benefit to you.