Return
of Premium Term Life lnsurance: Advantages & Disadvantages
Return
of premium life is level term insurance that refunds 100%
of all premiums paid at the end of a specified guaranteed
period. In other words, you get the full benefit of the
life insurance protection over the level term period and
if you outlive the term you get all of your money basck!
These products are becoming increasingly more popular as
life insurance shoppers become aware they are available.
Return of premium term life insurance is commonly referred
to as ROP term or money back term insurance.
Link
to Instant Return of Premium Quote Page
In order to determine if a return
of premium term policy makes sense, you need to learn
more about how ROP term insurance works. Below
are some of the advantages and disadvantages return of
premium term insurance.
Advantages of Return of Premium Term Insurance
- Guaranteed cash values. All
premiums paid will be returned at the end of the level
term period if the policy is maintained for the entire
level term period.
- Guaranteed level premiums. You can
select the level term period that matches your specific
needs. For example, if you have a 30-year mortgage, you
can buy a 30-year level term life insurance policy.
- ROP term policies offer loan options. In
other words, you can borrow against the policy subject
to certain limits. If loans are maintained, keep in mind
that there is an interest rate assessed on outstanding
loan balances.
- Guaranteed internal rate of return on
premium payments. For more information, see
the examples comparing
ordinary level term insurance versus return of premium
term life insurance.
- Returned premiums are not taxable under current
tax law. With return of premium term
insurance, the entire premium payment is considered
your cost basis. *
- Conversion options and policy riders are available
with ROP term. Conversion options are
available with most ROP policies allowing you to exchange
your level term life policy for a more permanent policy
without proof of health. This option can be invaluable
in protecting your insurability.
Disadvantages of Return of Premium Term Life
- Return of premium policies cost more. The
cost for return of premium term life insurance can be
dramatically higher than simple level term insurance.
- You could buy more life insurance coverage
for the same money or the identical level term period.
In other words, you essentially pay more for the same
amount of policy coverage during the level term.
- You must keep the ROP policy in-force until
the end of the guaranteed level premium period to receive
the full refund of all your premiums. There
are significantly reduced refund percentages for premature
policy surrenders. For an idea of the early surrender
penalty see, examples of ROP surrender values
and premium refund schedules.
- Some companies do not return premiums on policies
that are “rated” or charges more for health
concerns. If you cannot qualify for
at least standard rates, there is no reason to buy
return of premium term life insurance.
- If you happen to die before the end of the
initial level term period, the policy pays the face
amount only. Essentially, the extra premiums
paid for the ROP option are not returned.
- Loans are available but if you barrow money
from the policy’s cash value, interest will occur. Any
interest owned will be deducted from the insurance
amount before proceeds are paid.
- All insurance companies limit the age at which
you can purchase return of premium term life. For
example, return of premium insurance on a 15-year guaranteed
level term is not available after age 65 with most
carriers. On a 20-year ROP term, coverage is not available
after age 60 and on a 30- year level term, the ROP
option is not available after age 50.
The bottom line is that there are many pros and cons to
consider when purchasing return of premium term life
insurance. One of the most important is the selection
of your agent and making sure you choose the right insurance
company. MEG Financial represents the most competitive
ROP term policies available. Please call MEG Financial
today at (877) 583-3995 for a custom return of premium
life insurance quote and find out now if ROP term makes
sense for you!
 Related
Links for Return
of Premium Term Life Insurance
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* MEG Financial is not providing tax or legal advice.
If you have tax or legal questions, please contact your
accountant or attorney.
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