Casey Bond is a seasoned personal finance writer and editor. In addition to Forbes, her work has appeared on HuffPost, Business Insider, Yahoo! Finance, MSN, The Motley Fool, U.S. News & World Report, TheStreet and more. Casey is also a Certified.
Casey Bond ContributorCasey Bond is a seasoned personal finance writer and editor. In addition to Forbes, her work has appeared on HuffPost, Business Insider, Yahoo! Finance, MSN, The Motley Fool, U.S. News & World Report, TheStreet and more. Casey is also a Certified.
Written By Casey Bond ContributorCasey Bond is a seasoned personal finance writer and editor. In addition to Forbes, her work has appeared on HuffPost, Business Insider, Yahoo! Finance, MSN, The Motley Fool, U.S. News & World Report, TheStreet and more. Casey is also a Certified.
Casey Bond ContributorCasey Bond is a seasoned personal finance writer and editor. In addition to Forbes, her work has appeared on HuffPost, Business Insider, Yahoo! Finance, MSN, The Motley Fool, U.S. News & World Report, TheStreet and more. Casey is also a Certified.
Contributor Ashlee Valentine Deputy Editor, InsuranceAshlee is an insurance editor, journalist and business professional with an MBA and more than 17 years of hands-on experience in both business and personal finance. She is passionate about empowering others to protect life's most important assets. Wh.
Ashlee Valentine Deputy Editor, InsuranceAshlee is an insurance editor, journalist and business professional with an MBA and more than 17 years of hands-on experience in both business and personal finance. She is passionate about empowering others to protect life's most important assets. Wh.
Ashlee Valentine Deputy Editor, InsuranceAshlee is an insurance editor, journalist and business professional with an MBA and more than 17 years of hands-on experience in both business and personal finance. She is passionate about empowering others to protect life's most important assets. Wh.
Ashlee Valentine Deputy Editor, InsuranceAshlee is an insurance editor, journalist and business professional with an MBA and more than 17 years of hands-on experience in both business and personal finance. She is passionate about empowering others to protect life's most important assets. Wh.
| Deputy Editor, Insurance
Updated: Aug 30, 2023, 11:20am
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Life insurance is an essential tool as a financial safety net for your family if you pass away. But you might not love the idea of making years of payments toward a policy that may never result in a payout (good news for you, not so much for your wallet).
Return of premium (ROP) term life insurance takes that possibility off the table. This type of policy refunds all the premiums you’ve paid if you’re still alive when the policy term is over.
Here are some factors to consider before committing to this type of life insurance policy.
Return of premium life insurance is usually a type of term life insurance. You lock in a rate for the level term period, such as 10, 20 or 30 years. But unlike traditional term life, if you outlive an ROP policy the insurer will refund the premiums you paid.
With a typical term life insurance policy, you pay regular premiums during the time your coverage is in force. If you die during that time, your beneficiaries receive a life insurance payout known as the death benefit. If you’re still alive when the level term period is over, and you haven’t renewed the policy, there’s no payout and the policy ends.
ROP life insurance allows you to get those monthly premiums back if you’re still living at the end of the policy period. ROP life insurance is often a rider added to a regular term life insurance policy, and expect to pay more for it.
ROP life insurance is often a rider added to a regular term life insurance policy, and expect to pay more for it.
If you outlive your coverage, 100% of the money you paid in premiums during the term is returned to you, tax-free. However, if you fail to make your payments or cancel the policy, you may not get a premium refund (exact rules vary by insurer).
A return of premium feature is also sometimes available on types of permanent life insurance. For example, Nationwide offers a return of premium rider on one of its universal life insurance policies.
Below are some examples of term life insurance policies with a return of premium option:
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The main reason to buy a return of premium life insurance policy is risk mitigation: If you’re very uncomfortable with the idea of potentially outliving a term life policy, the higher cost may be worth it for you.
One major downside to ROP life insurance is that you essentially provide an interest-free loan to the insurer. And if you factor in inflation, you actually end up getting less money back at the end of the term since the refund doesn’t include any interest.
One major downside to ROP life insurance is that you essentially provide an interest-free loan to the insurer.
A better option may be to buy a traditional term life insurance policy, then take the extra funds you’d pay toward an ROP rider and put them in a safe investment account instead. Not only will you preserve some cash, but you’ll also end up with more money by the end of the policy term by putting your money where it can earn even modest returns.
Term life insurance is usually considered an affordable alternative to more expensive permanent life insurance options such as whole life and universal life insurance. Return of premium term life insurance is typically two to three times more expensive than regular term life insurance, according to Policygenius.
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