What Is Return of Premium Life Insurance?

Return of premium (ROP) life insurance is a type of term policy that refunds the premiums you paid if you outlive the coverage period. It works like this:

• If you outlive the policy term, you receive a full refund of your premiums.
• If the insured person passes away during the term, the beneficiaries receive the death benefit.

ROP term life insurance appeals to people who want the protection of standard term coverage with the added benefit of getting their money back. ROP policies cost more than traditional term life insurance.

Return of premium life insurance offers financial benefits alongside standard term coverage, but the trade-offs affect your wallet.

Advantages

• Premium refund: Outlive your policy term and get all your premiums back.
• Tax-free money: The refunded money isn't taxable income.
• Living benefits: Some policies include riders like critical illness coverage.

Drawbacks

• Higher cost: ROP policies cost more than standard term life insurance.
• Less death benefit: Higher premiums mean you might buy less coverage than you need.
• Strict rules: Missing payments or canceling early voids your premium refund.

Standard term life insurance costs less and provides more death benefit for the same price. ROP policies work for buyers who prioritize getting their money back over maximizing coverage.

Return of premium life insurance refunds all the premiums you paid if you outlive your policy term. Some insurers sell ROP as a standalone policy feature. Others offer ROP as a rider you add to a standard term policy.

Calculate your expected refund before buying an ROP rider. You must pay all premiums in full before the policy period ends to get your money back.

You get life insurance coverage plus a refund if you survive the term.

Return of premium insurance costs more than standard term life insurance and doesn't make financial sense for most people. Buy a traditional term life insurance policy and invest the money you save instead.

Life insurance with return of premium works for specific situations. If you have a high income with a low risk tolerance, only need temporary coverage, and you’ve maxed out your other savings accounts, life insurance with a return of premium rider may be worth it.

MoneyGeek analyzed dozens of term life insurers and identified the best options for rates, customer service, senior coverage and no-medical-exam policies.

Return of premium life insurance works for specific financial situations. This FAQ addresses common questions about ROP policies.