What is return of premium term life insurance?
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Asked October 9, 2012
The basic idea of ROP, or Return of Premium life insurance is that you can reclaim a portion of the premiums if you outlive the term of the contract. Since most term life policies simply expire if you outlive the term of the policy, an ROP policy is a way to recoup some of your investment.
Return of premium policies are more expensive than ordinary term life insurance policies, but are still less costly than a typical whole life insurance policy. As a general rule of thumb, a return of premium policy will cost around half again as much as a comparable term life policy.
The primary drawback of choosing a return of premium policy over a whole life policy is that whole life insurance earns interest on the premiums you have paid in. With an ROP policy, you only get back your premiums payments. The insurance company keeps the interest earned on the policy.
As a savings or investment tool, a return of premium policy loses most of its appeal. For that purpose, some type of whole, also called permanent, life insurance is a better choice and shows a much higher return on your investment. On the other hand, if your only concern is having the ability to recoup the money you have paid into the policy, ROP policies can be a good choice.
Before you purchase an ROP policy, research your options carefully. In many cases, it is more affordable to go with a whole life policy, plus whole life policies serve as an effective financial tool that the policy owner can make use of while they are living. Return of Premium policies do not offer any sort of gain on the premiums you have invested, and that could total a great deal of money, for example, over a 20 year term.
Answered October 9, 2012 by Anonymous