What is ROP Return of Premium Insurance?
Return of Premium Insurance (ROP) is just as it sounds. The ROP is a rider attached to a basic term insurance policy that provides a living benefit to the insured. This means that should you outlive your policy term and keep it in force to the end of the level term period, you can receive all of your premiums back in a tax-free lump sum. The policy is similar to term in that it protects your family for a specified time period you select from 10 to 30 years. The ROP premiums are bit more costly than straight term in that the extra 30-40% you pay in premium is reinvested by the carrier and returned to the insured if they outlive the policy.
Why should you consider Return of Premium Insurance?
While insurance protection can be vital to protecting your family, many can find which type to purchase confusing. Let’s review the whole insurance picture for a moment: Term life insurance is the choice of many consumers because it fits the budget and simply protects young healthy expanding families during times of highest risk of loss should the income earner of the family die unexpectedly.
Traditional term provides a benefit for the length of the term period selected 10, 20, or 30 years after that the policy coverage ends. If the insured had passed on during the term of coverage the beneficiaries would have received a lump sum payout, but if the insured is still living at the end of the term or had canceled the policy early, the beneficiaries receive nothing. Unfortunately after 20-30 years you may be uninsurable for more term because of health deterioration or age and may need to seek out a whole life or permanent insurance policy to protect your spouse or assets from risk during the retirement years. This form of insurance contain an investment feature which builds cash value and may require higher premiums and make the policy simply unaffordable for some. Return of premium can provide a suitable solution if it fits comfortably within the budget because it provides for a benefit for both events: A death benefit and a living benefit!
What are some of the features of return of premium ROP insurance?
As we have already mentioned if you outlive the term you will receive all of your premiums back in a tax free lump sum and it is guaranteed. In addition should you need to borrow from these funds many carriers have loan provisions allowing you to borrow your own money at reasonable rates of interest and keep the coverage in place during the term period. Many consumers are concerned that they may cancel prior to the term ending and will lose the ROP feature they paid extra for, however carriers have already considered this as well and if you surrender the policy during the term you will receive back a prorated portion of the premium which are pre-calculated at policy inception. Another handy feature can help you keep your protection if you lost your job well into the policy term the ROP cash accumulation could be applied to provide for paid up reduced term period coverage, so if you had a 30 year term and in year 15 were injured or loss you job and were unable to pay premiums you may end up with a paid up policy for a remainder of 5 years.
Male 32 years old with the highest health rating of Preferred Plus, $500,000 of coverage on a 30 year return of premium insurance term.
Monthly premium $54.98 Annual $659.76 the return of premium after 30 years would be $19,792.80
The premium for the same insured with straight term would be $38.06 per month
*If you are older or have a few minor health conditions the policy premium may be considerably higher as the carrier grades your mortality risks.
For most the Return of Premium can be a good option that can protect the family’s assets and large liabilities like the home in the event of an unexpected death. Additionally the lump sum return of premium can be used to pay down a considerable portion of those very liabilities, imagine paying $30,000 down on your mortgage balance in the 20th year or investing the tax free lump sum into an interest bearing annuity to create a retirement income stream for later years.