Why
Buy Return of Premium Term Insurance?
If you're simply looking for the cheapest life insurance
policy then traditional level term life insurance is the
way to go. However, return of premium term insurance offers
an attractive alternative between low cost term life insurance
and its more expensive counterpart whole life or universal
life insurance. Return of premium, a.k.a. ROP term insurance
has some neat features including the ability to build cash
values, the option to take a reduced “paid up policy” or
to have 100% of your premium payments returned if you outlive
the level term period.
Depending upon your objectives, ROP term may be a great
fit. Following are some of the scenarios where, return
of premium term life insurance makes the most sense.
- One of the top reasons you would buy return of premium
term life insurance is for the opportunity to get all
your premiums back if you outlive the level term period.
If you have an issue paying premiums for term life insurance
and getting nothing in return unless you die, then ROP
term life insurance is a great solution! While it does
cost a little more than basic term insurance, see ROP
term life comparison, it is drastically cheaper
than whole life or universal life and in some cases can
build more cash values.
- ROP term is a perfect solution
for mortgage
protection. If you have a 15 or 30 year mortgage
and are considering life insurance to cover the debt,
you can lock in a 15-year or 30-year level term policy
with a return of premium feature. The life insurance
protects your mortgage in case of death but if you
outlive the term level period you get all of your money
back. You can even access cash values to payoff your
mortgage early.
- Return of premium term life insurance
can also be referred to term
insurance to retirement.
While level term life can achieve the same objective,
ROP term allows you to bridge the gap from your working
years to retirement while accumulating funds that can
be used to supplement retirement income. For example,
if you are 35 years old you can lock in coverage for
30 years on a return of premium product and basically
have the coverage you need at a guaranteed level rate
to your retirement (age 65) and then receive all of
your premiums back. Additionally, you may also
have the option to use your cash values to purchase
a reduced paid up policy that would require no further
premium payments.
- Return of premium insurance also
can be used for business purposes such as key
man insurance.
If you own a small business, you likely depend on one
or two key people (sharp salesperson or experienced manager)
for a large portion of your company’s revenue.
If so, buying an ROP term life policy on your key employees
is an effective way to protect your business and if the
level term period is met you can get a complete refund
of your money. In most cases, all premiums returned are
not taxable!*
- Another great business use for ROP term
is for funding
buy/sell agreements. A buy/sell agreement
can be thought of as a business buy-out plan and is
designed to protect the owners of a company in the
event one of them dies or becomes disabled. In the
event one of the owners dies, the life insurance pays
the claim and the funds are then used to buy-out the
deceased owners’ family. With ROP term insurance,
policy cash values can be used to supplement a buy-out
of a retiring owner’s shares or the business
can simply get a full premium refund in the event the
level term period is outlived.
- ROP term life can also
be used in combination with other types of life insurance
policies such as term life or universal life. By combining
different insurance policies to meet your specific
objectives, you can save money but also get exactly
the type and amount of coverage you need! For example,
you may currently need a lot of life insurance for
the next 10 years but don't need quite as much beyond
the next 20 years. In this case, you can buy 10-year
guaranteed level term for the bulk of your insurance
and supplement with another 20-year ROP term life policy
for the balance. In this example, your costs are reduced,
you get the coverage amount that you need and you have
a premium refund option at the end of 20 years.
- Finally,
one of the best uses for return of premium term life
insurance is to protect a pension. While most people
will be retiring with 401(k) plans and no guaranteed
pensions, there are still some government employees,
military personnel and county and municipal retirees
that are or will be eligible for a monthly pension. These
plans are known as defined
benefit plans.
With all defined benefits plans, at retirement, you must
make an election to take 100% of your retirement benefits
(with no survivor or spousal benefits at your death)
or take a reduced pension to guarantee a continuing income
to your spouse in the event of your death. Generally,
the option to protect your spouse is very expensive and
offers very limited options. In most cases, ROP term
insurance is great for these situations because you can
opt out of the expensive “plan” option to
protect your spouse and purchase life insurance to protect
your pension for 20 or 30 years. ROP term guarantees
your spouse the life insurance proceeds if you die and
returns 100% of all premiums if you outlive the level
term period!
If you are in one of the above scenarios, return of premium
term life insurance is likely a great choice. At MEG Financial,
we represent nearly every insurance company offering competitive
ROP term policies. If you are considering ROP term insurance
and have questions or want more information, please call
MEG Financial today at (877) 583-3995. We can provide you
with a custom ROP term quote and help
determine if return of premium insurance 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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