By: Chris Kelly, Contributing Editor
Have you ever really thought about the amount of money you put into your life insurance policy? Each month you make payments on something that you will never have personal access to. If you outlive your term, you do not receive your paid premiums and you can either drop your policy or pay annually increasing premiums to continue your coverage. Unless you truly never want to have emergency access to this money, term life insurance is ideal. For the majority of us who would love to access that option, it is now available. This new kind of life insurance is called: Return of Premium Term Life insurance policy.
Return of Premium (also known as ROP) policies offer the benefit of returning partial or complete return premiums in a lump sum if the insured is still living when the policy term expires. There are a few term options for the guaranteed level period, usually 15, 20, or 30 years. There are also variations to the term options including graduated refunds. These refunds allow policy owners to receive partial premiums by canceling the policy several years into the term. For example, if a policy is created for a 30-year ROP life insurance product, the owner may be able to receive a 50% refund for paid premiums after the sixth policy year. Furthermore, if the insured does happen to pass during the term, the death benefit is paid as with traditional term life insurance policies; no return of premium.
These monthly premiums are slightly higher for ROP policies, but the benefits drastically outweigh other life insurance options. We calculated some sample policy prices from insurance carriers using an A- owner rating and found ROP falls in between pure term and permanent insurance products. This is even more of an incentive as ROP offers the benefits of traditional term life insurance while offering the added permanent insurance bonus of a paid premium refund.
How this works is that the premiums are set aside in a savings account intended to accumulate to equal to the premium paid in at the end of the term. The savings account is then returned as a refund of premium. Thus, ROP products are more appealing to people in good health who believe they will live past the policy term. They can then receive the large savings account and apply it towards future expenses such as a house down payment, college for children, or wedding expenses.
Our prices found that a 30-year ROP term life insurance policy is generally $25 more a month. However, as early as the sixth year, the owner has the option to receive a percentage refund. This would still be a lower option than purchasing a permanent insurance policy and would include all the benefits of a term option.
