Return of Premium Life Insurance (ROP)
This insurance policy allows you to regain all the premiums you pay to the insurance company if you happen to outlive the policy. In contrast to traditional insurance policies, such as term life insurance policy, the insurance company owns the premium.
Due to the fact that the return of premium term life insurance is a refund of all of the premiums paid, and not an interest-generating investment, the premiums in this policy are not taxed. And this type of policy is just comparable to paying rent on an apartment a period of time, say 25 years, and then getting all of your payments back in one compact sum.
Usually, the return of premium term life insurance is a rider, which is an add on to a life insurance policy that provides extra coverage. Thus, if a company offers a return of premium, then it will be seen under rider’s section.
Due to the fact that the return of premium term life insurance is a refund of all of the premiums paid, and not an interest-generating investment, the premiums in this policy are not taxed. And this type of policy is just comparable to paying rent on an apartment a period of time, say 25 years, and then getting all of your payments back in one compact sum.
Usually, the return of premium term life insurance is a rider, which is an add on to a life insurance policy that provides extra coverage. Thus, if a company offers a return of premium, then it will be seen under rider’s section.
How it Works?
As a hidden treasure in the term life insurance world, return of premium term life insurance policies offer a way to recover premiums that you would otherwise have been surrendered to the insurance company throughout the time your policy was in force.
With a typical term life insurance policy, you pay premiums for the coverage the insurance company provides. At the end of the policy’s term, if you’ve outlived the policy, the money you paid in becomes profit for the insurance company. On average, only 2-3% of term insurance policies pay out. Insurance companies make money when they don’t have to pay out the death benefit, so they’re banking on the odds that you’ll outlive the policy, surrender it, or let it lapse. They invest the premiums you pay to generate more income for the company, which allows them to pay claims and fund their business operations.
Because a return of premium policy guarantees that you acquire all the money you paid in premiums as a refund after the end of the term, it therefore is more expensive and comes with a higher premium payment, because the insurance company has a narrow timeframe to maximize the profit potential of the premiums that you pay.
Thus, the repayment of the premiums on a return of premium policy is the major reason why insurance companies charge a higher amount. The premiums are invested so as to aid in compensating for the loss they will incur through returning your premiums.
Who can Benefit from the Return of Premium Term Life Insurance
The return of premium term life insurance can be a good option for you, especially if you are not too good at making personal savings and investment as you are forced into making savings which you can get back after the end of your term.
Return of premium term life insurance policies are also great choices for people who want their money back at the end of their policy’s term for use in retirement or to offset debt.
