What is a return on premium life insurance policy?

In most cases you will not get your premiums back if you outlive your life insurance policy. With a return on premium (ROI) life insurance, policy holders have the opportunity to collect a refund of the premiums they have paid.

How does a standard term life insurance policy work?

Term life insurance is the simplest form of life insurance. The term time frame can be 5 year, 10 year, 15 year, 20 year and 30 years. With a standard term life insurance plan, you pay your regular premiums to keep the policy active. If you outlive the term time frame, the policy expires and past premium payments are unable to be recovered. If the insured dies during the contract time, the insurance company pays the death benefit to the beneficiary tax-free under the terms of the policy. Also with a traditional term policy, when the term policy expires, policy holders may have the opportunity to renew or convert the coverage into another type of life insurance policy. The basis of a traditional term life insurance policy is to offer affordable coverage options for the time frame of the policy. 

What is the advantage of a return on premium (ROP) life insurance policy?

Return on premium (ROI) life insurance functions like a traditional term life insurance policy. Similar term time frames 5 year to 30 year contract options. The difference is at the end of the term, you can qualify for a return of the premiums paid. A typical return on premium (ROI) life insurance policy can refund as much as 100 percent of the premiums minus any administration charges or late payment fees. The insured is typically able to receive a one time tax-free lump-sum payment combining all previous premiums paid. The policy holder can use this payment for other expenses that come up later in life, like mortgage, college or retirement. This type of policy works almost like a forced savings account with a life insurance add on. This is an attractive option for many individuals looking for life insurance. So to keep it simple, with a return on premium (ROI) life insurance policy, if you outlive your policy you can get the premiums paid back. 

What are the cons of Return of Premium Life Insurance?

Return on premium (ROP) life insurance can seem like a really great option, but there are some cons, the main one being the cost. A regular term policy is an attractive option because of its affordability. A return on premium (ROP) life insurance policy can be two to three times more expensive than a regular term policy.  You will get some or all of the money back, but also have to budget for higher premiums. Also policy terms may state the time frame the policy needs to be in force in order to qualify to have premium returned. If the policy lapses due to non payment of premium you may receive nothing back and also be without life insurance coverage. So its important to understand all the specifics of the contract including if it’s an affordable option for you and your family. 

Is a return of premium life insurance policy for me?

Life insurance is a smart investment for many people. Deciding the right life insurance policy that meets your needs can be a difficult. If you are able to afford the higher premiums, a return on premium policy may be a fit.

As always it is important to sit down with a licensed insurance professional to look at all your options before making an educated decision.