Index | Life Insurance | Return of Premium Term Insurance
Return of Premium Term Insurance
Return of Premium Term Insurance (also referred to as ROP Term) is a newly introduced type of insurance that provides one of the options: either the death benefit or the return of the total insurance premium. Return of Premium Term Insurance is therefore a convenient financial cushion as the insured or the indicated beneficiary is granted a financial reimbursement in any case. So, if you keep your policy for the term period which you are free to choose for yourself (usually 15, 20 or 30 years), if you are alive at the end of your coverage term you can receive the entire premium cost that you paid throughout the whole term to keep your policy in force.
The return of the premium you receive is income tax free because you do not receive more than you put in. At the same time you should know that being normally equal to your cumulative premium, the return of the premium does not include extra health charges or rider charges. The rider benefits under the contracts of this type usually comprise Accidental Death Benefit, Disability Income Rider, Waiver of Premium and Child Rider allowing you to extend your coverage to your child or children.
With Return of Premium Term Insurance you can pursue many objectives. It is an intermediary type of Life Insurance as, on the one hand, it ensures the death benefit to your beneficiaries and, on the other hand, the return of the premium provision is a sort of investment, though it is not sold as investment. There is no interest growth like in the policies with the cash value feature, but you can receive an ample sum back even if you terminate the policy before your coverage term ends. It should be pointed out that the cash value feature and the return of the premium provision are essentially different provisions. The cash value allows you to borrow money against the policy without terminating the policy, whereas the return of the coverage is either paid out at the end of the policy coverage or in case the policyholder terminates the policy.
Unlike most Term Life Insurance types (except Convertible Term Insurance) under which you get nothing if you outlive the policy term and thus may feel like a waste, with Return of Premium Term Insurance your investment in Life Insurance is unconditionally reimbursed, which makes this plan so popular. Most insurance companies offer a partial Return of Premium provision for policies cancelled before the end of the term. In such cases the amount of the return depends on the term the insurance policy has been kept. In such a situation, the general rule stipulates that the longer you keep the policy, the higher percentage you get as a return. Terminating your ROP Term policy early will give you a small percentage back. Conversely, the longer you keep the policy, the higher percentage you receive on terminating it. And if you keep it for the term period you initially selected, 100% of the total premium paid will be returned to you.
As for the cost of Return of Premium Insurance, which has the features of both, the cost of this plan usually runs between the cost of Term Life policies and Whole Life policies. The cost can also depend on age, physical conditions and habits (tobacco use, parachuting, etc.) of the applicant. It is important that under this plan your premiums are guaranteed and remain level over the period you selected as your term period.
A return of the premium feature can be offered in conjunction with different types of Term Life Insurance policies. Return of Premium Insurance in this case provides a refund for all or some of the premiums you paid for the Term Life Insurance at the end of the term if no death benefit was paid out during the coverage period. Term Life policies with the Return of the Premium feature are quite naturally more expensive than Term Life policies without this feature, but less expensive than Permanent Life policies. That's why taking into account your financial opportunities and the financial stability of your family you should consider whether the return of the premium benefit is worth its cost.
In accordance with the prime feature of this Life Insurance plan which is loyalty to the consumer, ROP Term Insurance will provide that you receive all your investment back, not a portion of it, like under Permanent Life Insurance contracts with the cash value feature. In comparison with the typical 20 year Level Term Insurance, for ROP Term Insurance you pay 30% more (according to the most general estimate, a common Return of Premium policy costs from 25% to 50% more a year than a regular Term Life insurance), which can be quite appreciable, but the extra premiums you pay will result in a higher return - about 7% over 20 years covering a large amount of the policy cost.
This Life Insurance plan is reported to enjoy great popularity with young people. They find this coverage appealing because they are not likely to think about leaving a beneficiary without support and this plan allows them to think not so much about their death, but about their future. Besides, most companies nowadays offer a continuance term after your original coverage term ends which allows policyholders to turn their insurance from just a convenient saving vehicle into an investment tool.
On the whole, Return of Premium Term Insurance can be an excellent proposition ensuring a solid protection and a full refund of premiums at the end of the term. Your choice of a Life Insurance policy fully depends on your needs and opportunities. But this plan certainly deserves your attention as it really makes sense to guarantee your future financial success when you do not lose anything at that.