Speak with an experienced advisor! If you’re simply looking for the cheapest life insurance policy then traditional level term life insurance is the way to go. However, return of premium term insurance offers an attractive alternative between low cost term life insurance and its more expensive counterpart whole life or universal life insurance. Return of premium, a.k.a. ROP term insurance has some neat features including the ability to build cash values, the option to take a reduced “paid up policy” or to have 100% of your premium payments returned if you outlive the level term period.
Depending upon your objectives, ROP term may be a great fit. Following are some of the scenarios where, return of premium term life insurance makes the most sense.
- One of the top reasons you would buy return of premium term life insurance is for the opportunity to get all your premiums back if you outlive the level term period. If you have an issue paying premiums for term life insurance and getting nothing in return unless you die, then ROP term life insurance is a great solution! While it does cost a little more than basic term insurance, see ROP term life comparison, it is drastically cheaper than whole life or universal life and in some cases can build more cash values.
- ROP term is a perfect solution for mortgage protection. If you have a 15 or 30 year mortgage and are considering life insurance to cover the debt, you can lock in a 15-year or 30-year level term policy with a return of premium feature. The life insurance protects your mortgage in case of death but if you outlive the term level period you get all of your money back. You can even access cash values to payoff your mortgage early.
- Return of premium term life insurance can also be referred to term insurance to retirement. While level term life can achieve the same objective, ROP term allows you to bridge the gap from your working years to retirement while accumulating funds that can be used to supplement retirement income. For example, if you are 35 years old you can lock in coverage for 30 years on a return of premium product and basically have the coverage you need at a guaranteed level rate to your retirement (age 65) and then receive all of your premiums back. Additionally, you may also have the option to use your cash values to purchase a reduced paid up policy that would require no further premium payments.
- Return of premium insurance also can be used for business purposes such as key man insurance. If you own a small business, you likely depend on one or two key people (sharp salesperson or experienced manager) for a large portion of your company’s revenue. If so, buying an ROP term life policy on your key employees is an effective way to protect your business and if the level term period is met you can get a complete refund of your money. In most cases, all premiums returned are not taxable!*
- Another great business use for ROP term is for funding buy/sell agreements. A buy/sell agreement can be thought of as a business buy-out plan and is designed to protect the owners of a company in the event one of them dies or becomes disabled. In the event one of the owners dies, the life insurance pays the claim and the funds are then used to buy-out the deceased owners’ family. With ROP term insurance, policy cash values can be used to supplement a buy-out of a retiring owner’s shares or the business can simply get a full premium refund in the event the level term period is outlived.
- ROP term life can also be used in combination with other types of life insurance policies such as term life or universal life. By combining different insurance policies to meet your specific objectives, you can save money but also get exactly the type and amount of coverage you need! For example, you may currently need a lot of life insurance for the next 10 years but don’t need quite as much beyond the next 20 years. In this case, you can buy 10-year guaranteed level term for the bulk of your insurance and supplement with another 20-year ROP term life policy for the balance. In this example, your costs are reduced, you get the coverage amount that you need and you have a premium refund option at the end of 20 years.
- Finally, one of the best uses for return of premium term life insurance is to protect a pension. While most people will be retiring with 401(k) plans and no guaranteed pensions, there are still some government employees, military personnel and county and municipal retirees that are or will be eligible for a monthly pension. These plans are known as defined benefit plans. With all defined benefits plans, at retirement, you must make an election to take 100% of your retirement benefits (with no survivor or spousal benefits at your death) or take a reduced pension to guarantee a continuing income to your spouse in the event of your death. Generally, the option to protect your spouse is very expensive and offers very limited options. In most cases, ROP term insurance is great for these situations because you can opt out of the expensive “plan” option to protect your spouse and purchase life insurance to protect your pension for 20 or 30 years. ROP term guarantees your spouse the life insurance proceeds if you die and returns 100% of all premiums if you outlive the level term period!
If you are in one of the above scenarios, return of premium term life insurance is likely a great choice. At MEG Financial, we represent nearly every insurance company offering competitive ROP term policies. If you are considering ROP term insurance and have questions or want more information, please call MEG Financial today at (877) 583-3995. We can provide you with a custom ROP term quote and help determine if return of premium insurance makes sense for you!
- What is Return of Premium Term Insurance?
- Advantages and Disadvantages of ROP Term Life
- 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.
