Return
of Premium Insurance
Return of premium (ROP) life insurance is a relatively
newer type of term insurance policy and is very similar
to level term life. It offers a guaranteed amount of life
insurance at a premium rate that is fixed for the entire
level term period. The major difference with ROP term is
that at the end of the level term period, return of premium
term insurance refunds 100% of all premiums paid. Yes,
ROP term insurance provides relatively inexpensive life
insurance protection with a completely guaranteed money
back feature!
ROP
Quote Now!
How Does ROP Insurance Work?
As you might imagine, return of premium term insurance
is priced higher than level term insurance. With ROP
term, the time of value of money principal applies. The
insurance company charges a higher rate for the life insurance
protection so that it can utilize the excess premiums to
invest and hopefully earn a rate of return that exceeds
the total premium payments over the term period. To see
the actual cost difference between ordinary term life and
ROP term see, “Compare
Level Term and Return of Premium Term Life."
Because time is required for the insurance company to
earn a satisfactory return on investment, most ROP term
policies have a minimum level period of 15 years. However,
the most popular ROP polices are offered over 20 or 30
year periods. The reason is simple, the longer the level
term period, the more time the insurance company has to
invest the premiums and earn a return. Therefore, 15-year
ROP term policies are usually very expensive compared to
the 20-year ROP and 30-year ROP term options.
Return
of Premium Term Builds Cash Value
In addition to providing a return of premium option at the end of the term period,
most ROP term policies build a cash value beginning at the end of the 5th policy
year. Policy cash value continues to increase on a percentage basis each year
until the end of the level term period. For a specific example of the cash
growth of a ROP policy see, ROP cash surrender schedule.
Like most whole life and universal life policies, ROP cash
values can be borrowed in the form of a policy loan. If
cash is borrowed from the policy, interest will accrue
on the outstanding loan balance. Any outstanding loan will
be subtracted from the insurance proceeds payable to the
beneficiary at the insured’s
death.
ROP
Term: Renewable and Convertible
ROP
term insurance is usually renewable beyond the level term
period but like level term, the premiums will increase
significantly. Depending on the insurance company, at the
end of the level term period, you may have the option to
use the policy cash value to purchase a guaranteed paid-up “whole
life policy” without
having to prove your health. Obviously, at the end of the level term period,
you also have the option to walk away with all of your premium payments.
Most
return of premium policies also offer a conversion privilege
or conversion feature. This option allows you to exchange
your ROP term policy for a more permanent or longer guaranteed
policy without proof of health. The conversion privilege
is ultimately valuable in situations where you may have
had a health change and are no longer insurable. All other
factors being equal, the longer the conversion period,
the more attractive the policy.
Return
of Premium Policy Riders
Additionally, most companies that underwrite ROP term
policies offer policy riders such as accidental death and
dismemberment (AD & D), children’s term
insurance, and waiver of disability and accelerated death
benefits. These riders allow you to add more comprehensive
policy benefits for a small extra premium. For more detailed
information on policy riders see, “Life
Insurance Riders Defined” .
Uses for ROP Term Life
Return of premium term is useful when the need for life
insurance is temporary and you are interested in paying
a little more money to get all or a portion of your cash
back when the insurance is no longer necessary. Many people
do not like the idea of paying for term insurance which
builds no equity and only pays a benefit if you die. ROP
term insurance, also known as “cash value
term”, is ideal in these situations as the cost is
significantly lower than whole life insurance but still
offers a 100% return of premium at the end of the level
term period. For additional uses for ROP term see, “Why
Buy Return of Premium Term Life Insurance.”
Summary
Return of premium term provides
a guaranteed amount of life insurance at a premium rate
that is level over the term period but also builds cash
value and returns 100% of premiums paid at the end of the
level term. It is a great combination of relatively inexpensive
life insurance protection with a completely guaranteed
return of premium feature. If you are considering
a ROP term policy, call MEG Financial today toll free at
(877) 583-3955. We represent the
most competitive ROP term insurance providers in the market
and will be happy to provide you with a personalized rate
comparison or answer any ROP questions.
 Related
Links
|
|
