Should You Buy Return of Premium (ROP) Term Life Insurance?
A term life insurance policy with a return of premium rider gives you a refund of the premiums that you paid for the insurance when the contract is up.
For many people, this sounds like a great deal. In other types of life insurance, the premiums paid into the policy are simply lost if the insured doesn’t die during the term.
Since you get it back with this type of policy, it sounds like a better deal.
The Cost of the ROP
If you have this rider, it may seem like less of a deal once you see the price. A policy with this rider can cost as much as 40 percent more than a non-ROP policy.
In addition, you must keep your policy for the full contract term in order to get the refund. Is it still a good deal if you have to pay more to get your premiums back?
Term Insurance Comparison
When you look at the amount of money paid through the entire term of a policy, a policy with a return on premium rider will cost significantly more over the years. For a 30-year policy, you may pay $10,000 or more above what you would have paid for a policy without the rider.
If you were to take that difference and invested it instead of using it to pay premiums, you could get a substantial return over the years. If you get an average of a 10 percent return on your investment, you can end up with a substantial amount above the amount you would have gotten back with the return on premium.
When you invest that extra money, you can keep your money increasing with inflation. If you pay it in extra premiums, the money you get back will not be adjusted. It will be worth less by the time you get it back.
Considering an ROP
When you consider getting a term life policy with an ROP, think about whether you can afford to pay more for your insurance. Also think about whether you want to keep the policy for the full term. If insurance costs go down, you will still be locked into this rate and must keep it to get the refund.
If you are thinking of getting an ROP rider, consider getting one on a shorter-term policy. Instead of a 30-year term, look for a 10 or 15 year term. This will give you a better return rate because there will be less time for inflation to devalue your money.
|AGE||SEX||Rate Class||30 Year $250,000||30 Year $250,000 with ROP|
|30||Male||Preferred Plus||Prudential - $22.73/mo||Prudential - $38.80/mo|
|30||Female||Preferred Plus||Prudential - $11.04/mo||Prudential - $33.22/mo|