Return of premium life is level term insurance that refunds 100% of all premiums paid at the end of a specified guaranteed period. In other words, you get the full benefit of the life insurance protection over the level term period and if you outlive the term you get all of your money basck! These products are becoming increasingly more popular as life insurance shoppers become aware they are available. Return of premium term life insurance is commonly referred to as ROP term or money back term insurance.
In order to determine if a return of premium term policy makes sense, you need to learn more about how ROP term insurance works. Below are some of the advantages and disadvantages return of premium term insurance.
Advantages of Return of Premium Term Insurance
- Guaranteed cash values. All premiums paid will be returned at the end of the level term period if the policy is maintained for the entire level term period.
- Guaranteed level premiums. You can select the level term period that matches your specific needs. For example, if you have a 30-year mortgage, you can buy a 30-year level term life insurance policy.
- ROP term policies offer loan options. In other words, you can borrow against the policy subject to certain limits. If loans are maintained, keep in mind that there is an interest rate assessed on outstanding loan balances.
- Guaranteed internal rate of return
on premium payments. For more information, see the examples comparing ordinary level term insurance versus return of premium term life insurance.
- Returned premiums are not taxable under current tax law. With return of premium term insurance, the entire premium payment is considered your cost basis. *
- Conversion options and policy riders are available with ROP term. Conversion options are available with most ROP policies allowing you to exchange your level term life policy for a more permanent policy without proof of health. This option can be invaluable in protecting your insurability.
Disadvantages of Return of Premium Term Life
- Return of premium policies cost more. The cost for return of premium term life insurance can be dramatically higher than simple level term insurance.
- You could buy more life insurance coverage for the same money or the identical level term period. In other words, you essentially pay more for the same amount of policy coverage during the level term.
- You must keep the ROP policy in-force until the end of the guaranteed level premium period to receive the full refund of all your premiums. There are significantly reduced refund percentages for premature policy surrenders. For an idea of the early surrender penalty see, examples of ROP surrender values and premium refund schedules.
- Some companies do not return premiums on policies that are “rated” or charges more for health concerns. If you cannot qualify for at least standard rates, there is no reason to buy return of premium term life insurance.
- If you happen to die before the end of the initial level term period, the policy pays the face amount only. Essentially, the extra premiums paid for the ROP option are not returned.
- Loans are available but if you barrow money from the policy’s cash value, interest will occur. Any interest owned will be deducted from the insurance amount before proceeds are paid.
- All insurance companies limit the age at which you can purchase return of premium term life. For example, return of premium insurance on a 15-year guaranteed level term is not available after age 65 with most carriers. On a 20-year ROP term, coverage is not available after age 60 and on a 30- year level term, the ROP option is not available after age 50.
The bottom line is that there are many pros and cons to consider when purchasing return of premium term life insurance. One of the most important is the selection of your agent and making sure you choose the right insurance company. MEG Financial represents the most competitive ROP term policies available. Please call MEG Financial today at (877) 583-3995 for a custom return of premium life insurance quote and find out now if ROP term makes sense for you!
Related Links for EG Financial
- Instant Return of Premium Term Life Insurance Quote
- Why Buy ROP Term Life?
- What is Return of Premium Term Insurance?
- Compare Level Term Life with Return of Premium Term
* MEG Financial is not providing tax or legal advice. If you have tax or legal questions, please contact your accountant or attorney.