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 on a straightforward structure:

• 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. Keep in mind that this type of policy usually costs more than a traditional term life plan.

Understanding the advantages and disadvantages of return of premium in life insurance can guide your financial planning. Here's a closer look:

Advantages

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

Potential Drawbacks

• Higher Premiums: ROP policies cost more than standard term life insurance.
• Limited Coverage: Higher costs mean you might afford less death benefit than you need.
• Policy Restrictions: Missing payments or early cancellation can void your premium refund.

Consider your budget and coverage needs before choosing ROP life insurance. The premium refund appeals to people who want their money back, but standard term life insurance costs less and provides more death benefit for the same price.

A return of premium functions as a financial mechanism within the term life insurance framework. When you purchase a term life insurance with a return of premium feature, the insurer commits to refunding all the premiums you paid if you outlive the term of the policy. This is distinct from merely adding a return of premium rider; it's an integrated feature of the policy itself.

If you decide to buy a return of premium rider, it’s wise to calculate how much the company will return to you. To be eligible for a premium return, you must pay all prior premiums in full before the policy period ends.

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

Return of premiums can be expensive and may not be economically beneficial for most individuals. It may be best to purchase a traditional term life insurance policy and invest the money you save by not buying the return of premium rider.

For some people, life insurance with return of premium is worth it. 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. We expand on these potential scenarios below.

Shopping for life insurance can be overwhelming, with so many companies to choose from. MoneyGeek analyzed dozens of carriers to narrow down some of the best term life insurance companies. From the company with the best rates to carriers with superior customer service to coverage for seniors and those who want no-medical exam life insurance policy options, these companies stand out above the rest.

Return of premium life insurance is just one type of life insurance policy to consider purchasing. Check out some of the most commonly asked questions about life insurance with return of premium below to help you decide if this policy fits your needs.