Life insurance with return of premiums: what is it
Standard term life insurance policyholders lose coverage at the end of the term and lose the premiums they have paid. Return of premium life insurance (ROP) reimburses premiums at the end of the period covered. Here is what you need to know about this option.
Is a premium pilot return worth it?
Return of premium term life insurance is an addition to a standard term life insurance policy. A customer who purchases a standard term life insurance policy can sometimes purchase a return of premium rider. This returns the premiums if the death benefit is not paid. However, a return of premium rider comes at a significant cost, adding 30% or more to premiums for term life insurance.
Here’s what you need to know to decide if a premium endorsement return is worth it.
What is the return of life insurance premium?
Term life insurance is a popular type of life insurance. Many people who compare whole life and term life insurance choose a term life insurance policy because it is usually cheaper. Term life insurance policies pay beneficiaries in the event of the policyholder’s death, but they are in effect for a limited time. For example, a term life insurance policy can be in effect for 15 years, 20 years, or 30 years.
If the policyholder is alive at the end of the term of cover, no benefit is paid and the policyholder simply loses the premiums. A return of a premium endorsement changes that. It is basically a money back guarantee.
How does ROP insurance work?
Return of premium insurance works as follows:
- A policyholder purchases term life insurance that is in effect for a period of time.
- The policyholder adds a return of premium rider. This increases the cost of term life insurance premiums by 30% or more in many cases.
- If the policyholder dies during the term of the cover, the death benefit is paid.
- If the policyholder is alive at the end of the term of cover, 100% of the premiums are refunded.
In most cases, policyholders must keep the premiums paid and the policy up to date until the end of the term for the return of the premium rider to remain in effect and the premiums to be refunded.
How much does the reimbursement of insurance premiums cost?
Buying life insurance that pays you back costs more. It is common for life insurance with return of premiums to cost at least 30% more than a term life insurance policy without this money back guarantee.
Reimbursement of premiums for life insurance professionals
ROP life insurance has some important advantages:
- Return of premium life insurance is cheaper than whole life insurance.
- The insurer is assured that they will receive the premiums refunded, or that their beneficiary (or beneficiaries) will receive a death benefit.
- Reimbursed premiums are tax exempt.
- Reimbursed premiums serve as a type of savings.
Refund of life insurance premiums against
There are also a few significant drawbacks:
- Return of premium life insurance is much more expensive than a standard term life insurance policy.
- Not all of the best term life insurance companies offer a return of premium rider, so consumers may have fewer options.
- The money spent on a Return of Premium rider may be better invested elsewhere, as other investments may produce a better rate of return.
Which companies offer life insurance with return of premiums?
Many life insurance companies offer return of premium life insurance. Here are some of the best choices.
Ideal for high death benefits: AAA life insurance
AAA offers premium refund coverage that allows policyholders to recover 100% of premiums. Policies are available with death benefits between $ 100,000 and over $ 5 million, making this insurer an ideal option for those who want substantial coverage. Policyholders can choose between cover periods of 15, 20 and 30 years.
Great for in-person support: State Farm
State Farm offers return of premium life insurance for policies starting at $ 100,000 of coverage. The policies have a term of 20 or 30 years. State Farm has one of the largest agent networks of any insurer, so policyholders who want help purchasing an ROP policy in person may appreciate working with this insurer.
Ideal for customizable coverage: Prudential
Prudential offers many options for customizing life insurance coverage, including converting term life insurance policies to permanent policies. The company’s PruLife premium repayment term is available with policies of 15, 20 or 30 years.
Do I need to take out premium refund insurance?
Is it a good idea to buy term life insurance with return of premiums? It depends. The key question to ask yourself is how much life insurance do you need and whether it makes sense for you to pay more for a money back guarantee. Most people find that a premium endorsement return is too expensive to justify. The surplus paid in premiums could be better invested elsewhere. However, those who are not consistent in saving money but will pay insurance premiums may prefer forced savings.