Return of Premium Life Insurance
Life Insurance

Return of Premium Life Insurance: A Guide to Return of Premium Rider

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What is the Return of Premium Life Insurance?

Although life insurance certainly has its benefits, it can be daunting to sign up for a lifetime of payments without any guarantee of payout. Return of premium life insurance is designed to return your premiums to you if you outlive your life insurance policy. You’d get everything you paid in premiums back, tax-free to use any way you’d like.

How Return of Premium Life Insurance Works?

When you buy a term life insurance policy, you’re covered for life insurance for a set number of years. If you pass away during that time, your beneficiary receives your death benefit. If you outlive the set term, then the policy is typically voided (unless you choose to extend it) and you wouldn’t get anything back.

With return of premium life term insurance, if you outlive that set term then you actually get all of the premiums that you paid back to you. If you die during that period, then your beneficiary receives your death benefit like normal. 

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Is Return of Premium Life Insurance Worth It?

While it might sound too good to be true, the return of premium life insurance is very real. However, you will have to pay more for this type of life insurance: It can cost as much as three times the premiums of normal life insurance.

Some of the benefits of return of premium life insurance include:

You will get back every cent you paid if you outlive your policy term
If you don’t outlive it, your beneficiary still gets your death benefit
You get back the premiums tax free and you can spend them any way you’d like
It’s a forced, low risk savings vehicle

The drawbacks of a return of premium life insurance policy are:

You don’t get any interest on the premiums paid back to you and the value of the payments depreciates over time
If you miss a payment, your policy could be voided
It’s more costly than standard term life insurance
You typically have to keep the policy for the entire term or risk not getting any money back
There are fewer options for return of premium life insurance policies, so you’re less able to shop around for the right policy for you

There are pros and cons to choosing the return of premium life insurance. Whether or not it’s worth it for you can depend on a number of factors such as your age, your health, the term of the policy, your financial situation, the cost of the premiums, and more. 

For many, the fact that returns of premium life insurance payments don’t earn interest is a significant drawback. Some prefer to purchase a standard term life insurance policy and add funds to an investment account, which can often be more than the value of the returned payments at the end of a return of premium life insurance policy. 

For others, the safety net of return of premium life insurance is well worth forfeiting any interest on the funds. Some also enjoy the forced savings vehicle that return of premium life insurance ensures and would prefer not to take investment risks in the stock market.

The right choice will vary greatly between policy holders. 

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Alternative Options to Return of Premium Life Insurance

Understanding your other options for life insurance will help you decide if the return of premium life insurance is the right fit for you. 

  • Term life insurance: You purchase life insurance for a set term, like 30 years. Once that term concludes, so does your life insurance.
  • Whole life/Permanent insurance: Your beneficiaries receive a payout no matter when you pass away.
  • Riders: These are amendments or added benefits to life insurance policies that you can purchase. They can provide additional coverage or limit the provisions of the policy. Examples of riders include long term care coverage, waiver of premium, and return of premium rider (return of premium life insurance is just an amendment/rider to term life insurance).

Term life insurance is typically the most affordable option, while return of premium life insurance is among the most expensive types of life insurance. 

ROP Life Insurance Quotes: What to Know?

ROP (return of premium) life insurance quotes will be higher than term life insurance quotes, because it’s seen as an added benefit to receive your payments back at the end of the term. Insurance companies need to account for this potential loss by charging higher premiums throughout the term. 

ROP life insurance quotes can be as much as 2-3 times the cost of traditional term life insurance. Understanding this will help you know what to expect and how to find the most cost-effective but beneficial policy for you. 

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How to Save on ROP Life Insurance Quotes?

Although ROP life insurance quotes are higher than most life insurance quotes, that doesn’t mean you still can’t save money and get the best deal possible. 

These tips on saving on ROP life insurance quotes can net you serious savings:

Bundle multiple insurance services with one provider to get a volume discount
Shop around and get multiple quotes from different providers
Some insurance policies require medical exams, which makes the premiums less expensive than policies that waive the medical exam. In these cases, take the medical exam to save money and try to make sure you’re healthy and in good shape so that your premiums aren’t too high.
Buy as soon as possible, since you’ll pay less the younger/healthier you are

Keep in mind that if your main draw to ROP term life insurance is the forced savings vehicle, you might prefer higher premiums to build up your savings. 

Final Thoughts on ROP Term Life Insurance

ROP term life insurance isn’t for everyone. It’s a special type of term life insurance that works well for those who hate the thought of paying into a policy and never seeing any benefit, or for those that want to build low-risk savings and aren’t disciplined/confident enough to do it in the investment market. 

By understanding the in’s and out’s of ROP term life insurance, you can make the right decision for you, your family, and your finances. 

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FAQ
Return of premium life insurance is typically designed as a rider, or a provision to a life insurance policy. This particular rider allows you to receive back any payments you made to the policy if you outlive the term of policy.
Your life insurance policy would act normally, paying out your death benefit to your beneficiary.
Insurance companies are taking a risk that you’ll outlive your policy’s term and they’ll have to pay back all the premiums you paid, which would leave them no benefit to insuring you. They charge higher premiums throughout the term to make up for this higher risk.