If you’re on the fence about buying life insurance because you can’t fathom the thought of paying for a policy you probably won’t use, consider the Return of Premium Life Insurance policy.
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This policy is gaining popularity again, despite being around for many years already. It’s an excellent plan for those who keep up with their premiums, have a steady flow of income, and are resistant to investing in life insurance since they’re in good health and think they won’t need a term life insurance policy.
Table of Content
What is A Return of Premium Life Insurance?
A return of premium life insurance does just what it says – it returns your premiums if you outlive the policy.
For example, let’s say you took out a 10-year term life insurance policy and are still alive at the end of the 10 years. Your policy cancels, and you just spent thousands of dollars on a policy you didn’t need.
It’s good practice to have life insurance because life is unpredictable. Even if you’re in the best health today doesn’t mean something can’t happen in the next 10 years.
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But, if you’re alive and you had a return of premium life insurance policy, you could receive most of the premiums you paid back. The ‘Return of Premium’ clause entitles you to the premiums minus fees they charge plus interest earned.
It’s like forced savings account with the benefit of protecting your loved ones if the unexpected occurs.
How Does It Work?
In a typical term life insurance policy, you don’t receive your premiums back if you outlive the term. The policy expires, and you don’t have life insurance or the money you paid.
With a return of premium policy, you earn most of the principal back (minus fees) if you outlive the policy. Of course, there’s a chance you won’t outlive the policy, which means you’ll pay higher premiums for no reason, but that’s a chance you take.
Is Return of Premium Life Insurance Worth It?
There are both good and bad sides to ROP life insurance. Understanding both sides can help you determine if senior life insurance with a return of premium feature is worth it.
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Earn your Premiums Back with Interest
This is the main benefit of ROP policies. You invest your money, earn interest and get it back (if you’re alive). You can use the funds however you want, whether to pay for college, retirement, or any other financial need. There are no restrictions.
Higher Premium Cost
ROP policies without medical exams have much higher premiums. Suppose you haven’t set yourself up with a retirement or emergency fund and taken care of other financial obligations. In that case, the higher premium cost could be a reason not to invest.
Maybe a Good Investment Strategy
Weighing the above factors can help determine if an ROP policy is right for you. Suppose you are financially secure and have maxed out your investments in most areas of your life, including retirement, emergency savings, college savings, and rainy day funds. In that case, you could be a good candidate for such a policy.
But, if you haven’t set yourself up financially yet or haven’t secured a steady job and income, focus on the other areas of your financial life first, choosing an ROP policy once you’re settled.
Return of Premium Life Insurance Pros and Cons:
As with any insurance policy, there are benefits and catches to consider when considering the return of premium life insurance policy.
Pros:
- Flexibility: You get the same flexibility as term life insurance, including choosing the time, benefits, and premiums.
- Return of Investment: You may receive a return on most of your investment in your life insurance policy if you outlive it.
- Non-Taxable: You won’t pay taxes on the return of premiums received since you paid the premiums with after-tax dollars.
- High Rate of Return: The guaranteed return rate is considerably higher than you’ll find in many traditional life insurance and savings policies
Cons:
- High Premiums: Most ROP policies have premiums higher than typical life insurance policies.
- Interruption Causes Cancellation: If you don’t make your premium payments on time, you could lose the opportunity to earn your premiums back. If you don’t have a steady income, it’s not a good choice.
- Availability: Different states have different rules about life insurance policies. ROP policies may not be available everywhere.
Return of Premium Term Life Insurance
We’ve discussed how the premiums on return of premium policies are higher, but here’s an example to show you how it can be beneficial if you’re in the right situation.
Let’s say you took out a $1 million term life insurance return of premium policy. During the 30-year term, you paid $10,000 annually. You’d receive $300,000 plus interest at the end of the term.
While you may find investments with higher rates of return, there is no risk in your ROP policy. You don’t have to worry about the market crashing or other factors affecting your investment.
Return of Premium vs. Term Life Insurance:
Both policies sound similar, but ROP policies have an advantage over term policies.
Here are the differences so you can choose what’s right for you.
Lower Rates for Term Life
Term life insurance usually costs less because there’s no risk for the insurance company. They don’t have to pay interest or return your premiums at the end of the term.
For example, a 37-year old non-smoker taking out a $250,000 term policy will pay an estimated $562 per year. If you add the return of premium rider, the premium increases to $880 per year.
Investment Potential
A return of premium policy is like an investment. A robust investment portfolio can be an excellent way to diversify your portfolio with a ‘good investment.’ You don’t have to worry about it decreasing in value, and it will have cash value at the end of your term, which you can then reinvest the funds.
If you’re struggling to calculate cash surrender value, click here to learn about it.
With a term policy, you don’t get your money back. Any money you pay to your life insurance, you cannot reinvest.
Borrowing Potential
You can borrow against your life insurance cash value, but your death benefit is reduced if you die before you pay it back or don’t pay it back. This also reduces the interest you’ll earn on the premiums paid.
Term life insurance doesn’t have a cash value for you to borrow against. It’s only valuable to your beneficiaries if you die within the term.
However,
Suppose you have a higher income and are looking for safer investment opportunities. As an elderly, going with such a policy is probably the best since your money will be more guaranteed than trying to invest it into different accounts.
Not all life insurance companies offer a return of premium life insurance. Like any life insurance, you should shop for the best deal. Use our tool to compare ROP life insurance premiums for seniors to find the right option.
Top Return of Premium (ROP) Life Insurance Companies
You know about life insurance and its death benefit for your loved ones. But did you know there are return of premium policies that pay back your premiums if you outlive the policy?
This may help seniors who live longer than expected and don’t need to use their life insurance.
While the policy has higher premiums, it acts like a forced savings account. If you outlive the term, you get your premiums back, which will be worth more than what you paid.
Unfortunately, ROP insurance isn’t standard, but we’ve rounded up the top companies that offer this plan.
| Company | Coverage Amount | Terms Length Available | Medical Exam Required | Conversion Option | A.M. Best Rating | Better Business Bureau Rating |
| Assurity | $25,000 – $10 million | 20 and 30 years | No | Yes, with options to convert to a permanent policy | A- | A+ |
| State Farm | $100,000 – $250,000 | 20 and 30 years | Yes | Yes, can renew the term up to age 95 | A++ | A+ |
| Mutual Of Omaha | $25,000 – $300,000 | 30 years | No | Yes, with more flexible conversion options | A+ | A+ |
| AAA | $50,000 – $5 million | 15, 20, and 30 years | Depends on telephone interview | Yes, can convert to a permanent policy up to age 65 | A- | A+ |
| Cincinnati Life | $25,000 – $1 million | 20, 25, and 30 years | Yes | Yes, can convert up to age 70 | A+ | A+ |
Note: The eligibility criteria for each company vary based on age, smoking status, and other factors. Please refer to the text for more details.
Assurity
Assurity has an A+ Better Business Bureau rating and offers life insurance with no medical exam required. You must go through an agent to apply for the coverage, but they offer a couple of options for the return of premium.
The rider is called the Endowment Benefit Rider and is available in 20 and 30-year term policies. The rider allows you to receive your premium back at the end of the term if you’re still alive.
They also offer a return of premium on policies you cancel early, but only a percentage of what you paid.
Eligibility
Assurity’s return of premium policies are available for ages 18 – 60 for a 20-year term policy for non-smokers and up to age 55 for smokers.
The 30-year term policy is available for ages 18 – 55 for non-smokers and up to 50 for smokers.
Coverage Amount
You can apply for $25,000 – $10 million coverage without medical exam options. Just keep in mind this will increase your premiums even further.
Pros:
- Great customer service
- No medical exam is required (if you choose that option)
- Options to convert to a permanent policy
Cons:
- You can’t apply online
State Farm
State Farm is a household name regarding insurance, including life insurance. This large company also offers a return of premium policy on 20 and 30-year terms.
We also like that you can bundle your insurance plans, including auto insurance, with your life insurance and receive lower premiums.
State Farm has an A+ rating with the Better Business Bureau and offers ROP policies for smokers and non-smokers.
Eligibility
State Farm’s return of premium policies is available as a 20-year term from ages 18 – 60 for non-smokers and up to age 55 for smokers.
The 30-year ROP term is available for ages 18 – 45, whether you’re a smoker or non-smoker.
Coverage Amount
Depending on your financial circumstances, you can apply for coverage from $100,000 to $250,000. You also have until age 75 to convert the policy to permanent life insurance.
Pros:
- Has a long history of financial stability
- Great customer service
- You can renew the term up to age 95
Cons:
- Not available in all states (MA, NY, and WI are excluded)
- You must pass a medical exam
Mutual of Omaha
Mutual of Omaha offers a return of premium policy, but only on their 30-year term. They offer some of the fastest turnarounds, with some branches approving life insurance applications on the same day.
You may not have to take a medical exam, and you can convert to a permanent policy until your 70th birthday, much longer than most insurance companies allow.
Eligibility
Because Mutual of Omaha only offers a 30-year term, the eligibility is based on the coverage you can get. Anyone can qualify for the policy because they don’t require a medical exam, but the premiums will be higher.
Coverage Amount
Coverage starts at $25,000, and the maximum depends on your age.
Up to age 50, you can get coverage up to $300,000; from ages 51 – 60, you can get coverage up to $250,000; and from 61 – 70, you can get $150,000.
Pros:
- Has more flexible conversion options
- Can get an answer the same day you apply
- No medical exams erquierd
Cons:
- There’s only one term to consider
- You can’t apply online
AAA
AAA is known for its flexible life insurance terms. Most companies offer only a 20 or 30-year term, but AAA offers 15, 20, and 30 years, which allows you to find the policy that suits your needs and is most affordable.
AAA returns 100% of the premiums if you outlive the contract, and they offer a no medical exam option. Whether you need the exam depends on your telephone interview with AAA, so you won’t know immediately if you need an exam.
You can convert your AAA term policy to a permanent policy up to age 65.
Eligibility
AAA isn’t transparent about the age limits for their term life insurance policies. Instead, they require you to contact a life insurance agent to discuss your needs.
Coverage Amount
AAA offers ROP policies starting at $50,000 and up to $5 million, depending on your financial needs.
Pros:
- Has more term options
- Convertible until age 65
- You may not need a medical exam
Cons:
- Has a few customer service complaints
- There aren’t any riders to add to the policy
Cincinnati Life
Cincinnati Life also offers term ROP policies with flexible terms. For example, they offer a 20, 25, or 30-year term to give you more options.
You will receive 100% of your premiums if you’re alive at the end of the contract and your premiums are current.
Cincinnati Life has an A+ rating with AM Best and offers a conversion option until age 70. This gives you time to determine if you want permanent life insurance or to let your term policy end.
Eligibility
Your age determines the term length you can choose. For example, ages 18 – 65 can get a policy for 20 years; ages 18 – 60 can get a 25-year policy, and ages 18 – 65 can get a 30-year policy.
All applicants must pass a medical exam.
Coverage Amount
At Cincinnati Life, you can apply for coverage starting at $25,000 and up to $1 million.
Pros:
- Offers several terms
- Can convert up to age 70
- Great customer service
Cons:
- Everyone must take a medical exam
- Terms are limited by age
Finally,
The top return of premium policies gives you the coverage your loved ones need if you die and your premiums back if you outlive the policy.
Shop around to see which policy suits you the most. Look at the conversion rules, how much coverage you can get, and whether you’ll need a medical exam to choose the right policy.
Get quotes for free here.
FAQs
If you opt for a return of premium rider, you can get a full refund of the premium paid for the base policy and ROP rider. However, this doesn’t include fees or other riders.
It’s important to note that failure to make payments on time may result in a reduced refund or disqualification from receiving one altogether. Before purchasing an ROP policy, it’s recommended to consult with the provider and read the fine print carefully.
There should be a catch, and there is a higher premium. You pay for the right to earn the premiums back. It’s the insurance company’s way of protecting themselves. Otherwise, they’d all be out of business.
Expect to pay up to 30% more in premiums for ROP policies versus term life policies.
Each life insurance company offers different policies. Depending on the company, you may secure a policy for 10, 15, 20, or 30 years. Always shop around and ask about all your options to determine the right plan.
This is a personal decision. Is it worth it if you have a steady income and you’ve already invested in other areas of your life? It can be, especially if a significant expense occurs in 10 – 30 years. But it may not be worth it if you don’t have a solid income or haven’t invested in other areas of your life.
What happens to the money at the end of term life insurance?
A typical term life insurance policy expires, and that’s it. You have to apply for a new or renew the existing policy, but you never get your premiums back. If you want the option to have a return of premiums, you must pay for the rider.
Get your Return of Premium Quotes
Don’t buy new life insurance without getting quotes. Companies offer different terms, premiums, and interest rates on such policies.
If you’re looking for the best policy, start here and get your free quote. With just a little information, we can secure the best quotes for a return of the premium policy so you can see if it’s right for you.
