Wow, I get my money back? Return of Premium Life Insurance sounds great!
And it is, but there are several factors that you have to consider before opting for this type of Life Insurance coverage.
A Return of Premium Life Insurance policy (ROP) works in exactly the same way as a Term Life policy. You decide how long you want the coverage for and at the end of that time the policy will typically expire. The difference between the two types though is that with an ROP, if you remain living at the end of the term, you can be entitled to a full refund – tax free – of premiums paid. This is not the case with standard Term Live coverage.
- Life insurance coverage with a cash bonus
- Tax-free lump sum refund of premiums paid – if you outlive the term
- Fixed period of coverage
- Can be beneficial as an investment option
- Typically higher premiums than standard Term Life
- Early cancellation of the policy may render it void with no refund offered
- Additional coverage may need to be purchased at the end of the term
Although the idea of getting your money back sounds appealing, it is worth noting that this cash incentive can come at a cost. Typically the premiums for ROP are substantially higher than for a standard Term Life coverage and in addition, they may increase year on year. You are paying extra for the refund facility, which is why ROP coverage can sometimes be attractive as an investment.
As a comparison to Universal or Whole Life, ROP premiums are typically lower, however, this is usually because you are only paying for a fixed term in ROP coverage.
ROP can be great if you consider yourself likely to outlive the term although should you die during the term, it will still pay out a death benefit.