15
Nov-21
An insurance policy generally isn’t something you can return for your money back, unlike a regrettable jacket or the wrong size shoes.
But among the types of life insurance, one breaks out of that conventional wisdom: Return-of-premium life insurance promises to refund the money you paid if you don’t die during the policy term. It’s a compelling proposition for people who cringe at the thought of paying for insurance with the possibility of never getting a payout.
What is return-of-premium life insurance?
Return-of-premium, or ROP, life insurance is a type of policy that refunds all premium payments made if the policyholder is still alive at the end of the policy period. The returned money is tax-free and can be used for anything.
If the policyholder dies while the policy is still active, the death benefit will pay out to the life insurance beneficiaries just as a standard term life insurance policy would.
How does return-of-premium life insurance work?
You buy a return-of-premium term life insurance policy, perhaps for a 20- or 30-year term. If you die during that time, your beneficiaries receive the death benefit. If you outlive the policy, you get back exactly what you paid in, with no interest. The money back is not taxable, as it’s simply a return of payments you made.
With a regular term life insurance policy, if you are still living when the policy expires, you get nothing back.
But everything has a price, right? You’ll pay a lot more for the money-back feature, as adding return of premium to a policy could triple the cost. According to data from Quotacy, a healthy 40-year-old male buying a $100,000 return-of-premium policy for a 20-year term could pay $499 a year, compared with $145 annually for the same policy without return of premium.
Is return-of-premium life insurance worth it?
A standard term life policy may be all you need. The money you don’t spend on the return-of-premium benefit can be used for something else or put into an interest-bearing savings account. If you don’t spend the money and let it grow, you will end up with more money than if you had simply gotten your premiums back due to the interest you earn.
If you want a guarantee that you’ll get back the money you paid in premiums, then be sure to make all your payments on time and don’t cancel your policy. Otherwise, the return-of-premium benefit may not pay out at the end of your policy.
source: https://www.nerdwallet.com/article/insurance/return-of-premium-life-insurance