The return of premium life insurance is part of what makes life insurance a great idea.
Life insurance on its own is a wonderful investment especially if you think about your family a lot.
Though there are different types of life insurance policies, they all have what makes them good options for the policyholders.
Now, the return of premium (ROP) life insurance is part of the benefits of buying term life insurance.
But you need to adhere to the policy for you and your family to gain from the return of the premium.
Perhaps you need to know how it works then just pay close attention. For it might just be the type of policy you need to buy.
What is life insurance?
Life insurance is a legal contract binding an insurance company and the policyholder. For the policyholder’s premiums, the insurance company will pay a lump sum to the beneficiaries of the policyholder, in the event of their passing.
You enjoy life insurance when you shop for quotes and get what works for you and your family. more so, different types of life insurance policies offer various benefits with separate amounts of premiums.
So, the return of premium is part of the policies you can get from term life insurance, if you wish.
What is term life insurance?
Term life insurance is the purest form of life insurance. This type of life insurance is also the simplest type out of the rest. It has a beginning and an end date.
Ideally, the policyholder may decide to purchase a policy that will last for 20 years or more. So, as a policyholder, you have to keep paying the premiums until it comes to an end, then you can renew it.
However, you will get your return of premium if you outlive your term life insurance.
What is a return of premium life insurance?
Return of premium life insurance is a policy in term life insurance that permits you to receive your premiums back at the expiration of your policy.
Your term life insurance has a specific date it must run. Ultimately, policyholders can decide to buy life insurance that will last between 10 to 30 years.
Also, some policyholders may decide to renew while others do not.
How does the return of premium life insurance work?
Firstly, you have to be a policyholder of term life insurance coverage or return of premium coverage as an independent policy.
Your term life insurance comes with an end date. Before its end date, you must keep paying your premiums regularly.
Perhaps, you pass away while your term life coverage is still on and you were paying your premiums, the insurance company will payout the benefits to your beneficiaries.
However, if you were still alive at the end of the coverage policy and didn’t renew it, there won’t be any payout.
Say you maintained your policy and outlived it, you will get all your premiums back to their fullest. And it comes back to you tax-free.
You get nothing if you cancel your policy before time or stop paying your premiums when due. So, be sure you can always meet up with the premiums if you want to enjoy all the benefits from the return of premium life coverage.
Furthermore, some life insurance companies sell return of premium life insurance as an independent policy.
So, it is either you buy it solo or you buy it as a rider. Some companies sell it as a rider which means that they will add it to the regular term policy that you buy.
By the way, a term life insurance policy without the ROP clause attached to it does not have pay out option when it ends.
How costly is the ROP?
Though term life insurance is among the cheapest life insurance coverage you could buy.
Contrarily, the return of premium life insurance policy is expensive. More so, when your ROP comes to an end, you have to renew it with a higher amount than other plans.
These high premiums may seem like the price you pay for getting all your premiums back at the end of the coverage.
And even when it comes tax-free, it has no interest attached to it at all.
Who can buy return of premium life insurance?
Healthy adults can buy this coverage for themselves. Also, you mostly do not need a medical exam to buy this coverage.
However, insurance providers may have specific rules guiding their services.
It may be built around your health and your age. But ask questions from your policy provider and know what they need from you.
Advantages of ROP
- It’s a means for saving funds. While you are paying for your premiums, keep in mind that when your policy ends, you will receive all your premiums back.
- It is tax-free. You do not have to worry about paying tax when you receive your premiums back.
- Your policy might come with an opportunity to build cash value. So, in case you have a money emergency, you can borrow against your cash value.
- You have the option of buying the policy independently or as a rider.
Disadvantages of Return of Premium life insurance
- Your return of premium is at the mercy of inflation. If the economy suffers inflation at the time of your payout, the amount of your refund may depreciate.
- The policy is more expensive than the standard term life insurance. Also, the renewal is as equally expensive.
- Not renewing your policy or terminating it before the due date will make you lose all the premium payback you were to get.
- It is for a short period. The return of premium policy lasts for like five to thirty years.
Summarily, life insurance allows you to take care of your life and your beneficiaries.
Again, your policy may not be favorable to the next person. Everyone gets what serves and answers to their needs. Return Of Premium (ROP) may not be the right option for someone that can’t pay the high premiums. Say you’re ready to get a policy, then your preferred insurance company will give you options on what will work for you.
