Is Return of Premium Life Insurance Worth It?
When it comes to life insurance, you have various options to choose from. One question that often arises is, “Is Return of Premium Life Insurance Worth It?” Let’s delve into this topic to understand the pros and cons of Return of Premium (ROP) life insurance and whether it’s a suitable choice for you.
With a standard term insurance policy, you will pay premiums continuously throughout the duration of your coverage. If you die within this period, your beneficiaries will receive a payment from the life insurance company called the death benefits. If you haven’t renewed your insurance, it will expire.
Term life insurance with return of premium (ROP) eliminates such an option. If you are still alive at the end of the insurance term, this form of coverage reimburses you for all your premium payments.
Return of Premium Life Insurance: What Is It?
Term life insurance typically comes in the form of a return of premium. You lock in a rate for the level duration periodâ10, 20, or 30 years. However, the insurer will return your money if you outlive ROP coverage versus typical term life insurance.
How Life Insurance Premium Returns Operate
With a standard term insurance policy, you will pay premiums continuously throughout the duration of your coverage.
You should budget more for ROP life insurance, frequently added as a rider to a standard term life insurance policy.
When you outlive the coverage, you will receive a tax-free refund of 100% of your premiums paid. You may not get a refund if you cancel or stop paying for the insurance. (Specific regulations vary by insurer).
Specific permanent life insurance plans also occasionally include a return of premiums option. For instance, on one of its universal life insurance policies, Nationwide refunds premium riders.
Life Insurance Policies with Return of Premium
Here are a few instances of term life insurance plans that offer a refund of the premium:
RBC Term Life Insurance coverage for people aged 18-70, with rates starting at less than $13/month
IA Pick-A-Term offers flexibility for young families seeking to optimize their life insurance during their children’s financial dependency, with customizable terms ranging from 10 to 40 years
ManulifeVitality PlusâĒ Pay level premiums for 10 years, 20 years, to age 65 or for life, and choose a coverage from $250,000 up to $25 million
Why Get Return of Premium Life Insurance?
The primary justification for purchasing a return of premium life insurance policy is risk mitigation: the higher premium could be justified if you find it extremely unsettling to think that you might outlive a term life policy.
The fact that you are providing money to the insurer at no interest is one of the main drawbacks of ROP life insurance. Furthermore, because interest is not included in the return, you ultimately wind up with fewer bucks at the close of the period when inflation is considered.
Purchasing a standard term life insurance policy and putting the additional money you would have to pay for an ROP rider into a secure investing account would be preferable. By placing the funds where they can make even moderate returns, you’ll not solely save a few bucks but also wind up with additional funds after the insurance term.
What Is the Cost of a Return of Premium Life Insurance?
Term life insurance is typically seen as a more cost-effective choice for permanent life insurance than whole and universal life insurance. According to Policygenius, the return of premium term life insurance usually costs two to three times as much as standard term life insurance.
Pros of Return of Premium Life Insurance
ROP life insurance offers some noteworthy benefits:
Payments that are guaranteed: The insurer will either reimburse you for all of your premiums or pay beneficiaries’ death payments.
Savings: Refunded premiums are one way to save long-term.
Tax advantages: There is no tax on refunded premiums.
Cons of Return Premium Life Insurance
Furthermore, there are a few noteworthy drawbacks:
Cost: Return of premium life insurance is more expensive than term life insurance.
Restricted options: Customers may have fewer options because not all of the top-term life insurance providers provide a return of premium riders.
Opportunity cost: The money paid for the premium rider’s return might be better used for other purposes. You may obtain higher rates of return from other investments.
Final Wordings
Your own tax status and risk tolerance will determine how well you should buy a return of premium life insurance policy or a return of premium rider. A conventional term policy minus the rider often makes greater sense for policyholders who are at ease with the stock market fluctuations and can put their money in tax-free accounts or tax-deferred. However, cautious policyholders could find the income rider’s guaranteed rate of return more alluring.
FAQs
What is the catch with the Return of Premium Life Insurance?
Premium life insurance return rider are two to three times more costly than conventional term life insurance. Getting your premiums back if you outlast the term may sound appealing, but most people find the additional premium expenses unfavorable.
If you cancel your life insurance, do you get your money back?
Usually, policyholders who cancel their life insurance do not get their money back. You may be entitled to a “cooling off period” in certain states, lasting 10 to 30 days after purchase. In short, you will receive a reimbursement if you promptly withdraw and have remorse.
Does Return of Premium Life Insurance make sense?
ROP policies are frequently nothing worth it because they are significantly costlier than conventional term life insurance policies. You might purchase a regular-term policy and reinvest the cash you save instead of paying more and hoping to get the funds back later.
