Return of Premium Term Life Coverage

If you would like to get all your money back at the end of the guaranteed 15, 20, or 30 year level term, you should consider a Return of Premium (R.O.P) term life coverage policy. Only a handful of insurance companies offer this type of product so make sure you talk with an independent insurance agent who can assist you with term life optionsterm life quotes online with multiple life coverage companies.

A question I hear all the time is: “how can the insurance company do that?” Meaning, how can the insurance company protect the policy owner in the event of a death and then turn around and give all the money back if the insured is still alive at the end of the term? The answer to the question is the insurance company will typically charge double the premium for Return of Premium term life coverage which allows the insurance company to invest the difference over the length of the term. Also there is a vesting schedule, so if you do not stick to the plan and pay into the policy for the entire term you will get little to nothing back, here is an example of how it works:

The chart illustrates a 35 year old male preferred non-tobacco paying $110.38 per month ($1,325 per year) for a 500,000 death benefit Return of Premium term life insurance policy. If you look closely at the end of year 30 or age 65 you can see the total premium outlay is $39,737 and the “Cash Value” is $39,737 which is totally guaranteed if the policy owner pays the premium for 30 years. Unfortunately if the policy owner stopped paying premiums into the policy before year five they would get nothing back and the insurance company keeps everything. So, it is a pretty good deal if you stick to the plan and pay the premiums for the entire term length in order to get 100% of your money back.

An important aspect in the policy to examine is if the insurance company will only give the policy owner 100% of the money back if you pay annually whereas some companies return 100% even if you pay monthly, quarterly, or semi-annually. An interesting fact about Return of Premium coverage is 15 year R.O.P. term is more expensive than a 20 year R.O.P and 30 year R.O.P is almost always the cheapest. The reason for this is the fact that the insurance company has extra money to invest for a longer period of time as well as the shorter the term length the higher probability someone will continue to pay the premiums and the insurance company will have to return the money to the policy owner.

Furthermore it is important to pay attention to the conversion privileges in the policy as well. Meaning, some Return of Premium term life coverage policies will not let you convert to a permanent policy such as a whole life or universal life coverage which can be unfortunate if your health changes during the term period and you would like the death benefit to last longer. Most likely the policy with either go to an annual renewable term with would completely gobble up your cash value because in this example the premium goes from a guaranteed $1,325 per year to $22,306 in the 31st year which means if you forget to ask the insurance company for your money back they will rake you over the coals for cost of coverage and you will get nothing back and your coverage will lapse typically after two years if you do not pay the humongous increasing annual renewable term premium.

It is extremely important to understand how life coverage policies work and to be with an agency who will be around for the next 15, 20 or 30 years. If you have any questions or concerns please reach out to our office and we will take care of your life coverage needs.

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