Many people are unaware of how return-of-premium life insurance works. Still, it is a great way to save money on your premiums.
The return-of-premium (ROP) policy is under term life insurance. If you start investing in an ROP plan, it will give peace of mind no matter what comes your way!
Take a closer look at this coverage type and see what it means for you. Read on.
The death of a loved one can be heartbreaking and financially devastating. There are two possible outcomes following the unexpected passing of your loved one.
Either they have enough money to leave behind, or their family is left in financial limbo with no idea how to get by without them.
With a Return-of-premium life insurance policy, your beneficiaries receive financial benefits from the agency if you die during the specific term or time frame. There are ways to ensure the people you love get taken care of.
But, if you are still alive at the end of your term insurance, that’s when you get your money. You’ll be getting all the premiums back, minus what benefits they’ve already paid out.
How Does Return-of-Premium Life Insurance Works
One of your significant decisions is choosing life insurance. It’s scary to think how much you have in our lives that would be lost if something unfortunate happened.
At the end of term life insurance policy, you may have to pay back premiums. Here’s what it means for you and how much money is involved.
For instance, Andy bought life insurance for 10 years without streaming it. His annual premium was $500 per year – but he has nothing back from this purchase because he could outlive it by 40 more years!
Tommy is a good neighbor of Andy, and they happen to be the same age as well. They both have insurance policies that are the exact same – until Tommy decides to add on an ROP rider for his premium cost at $1000 per year.
If he outlasts his policy time frame by paying more upfront, he gets what back in return!
Now, ROP is an option you can buy to get back the money spent on your term insurance. It’s up to you if this additional cost will be worth spending for protection from death in a time where life-threatening diseases are prevalent and often have no cure.
The cost of your insurance will vary depending on the type you pick, how much coverage you want to get, and several other factors. Luckily there are ways to reduce the cost without sacrificing coverages or benefits!
Here’s another explanation of how ROP works that you can use as a guide:
- A policyholder makes monthly or annual payments, referred to as premiums, to keep insurance going.
- If the policyholder dies while in force, a death benefit will be handed to the beneficiaries.
- If a policyholder outlives the term, 100% of the amount paid throughout the policy is refunded tax-free.
Advantages and Disadvantages of ROP
Encouraging people to get life insurance coverage is great. But one thing that will help prospective clients like you make an informed decision is understanding both the pros and cons.
Below is a list of useful information on what you can expect from getting a return-of-premium:
Pros
- Outlive the policy term, and you get your money back.
- Your returned payment won’t be taxed because it’s not part of your income.
- You can use the refunded amount to pay off debt, mortgage or add it to your savings.
- Over time, your policy account will build cash value that you may borrow during the initial term period.
- Generally, the death benefit from your insurance is also tax-free.
Cons
- Your premiums are more costly.
- There is no interest in the money returned.
- When you cancel your policy or fail to pay before the term expires could result in losing your refund.
Additional:
- ROP is a feature often called life insurance “rider.”
- There is a possibility of having a minimum amount of coverage you must pay.
- Depending on the policy, you may convert an ROP to permanent life insurance.
- ROPs are different and vary according to your chosen insurance company.
Who Should Get Return-of-Premium?
Never leave behind the most important people in your life because they could have a major need for money. Besides, there is no better economic security than having an insurance account to protect them from financial ruin.
Suppose you belong in one of these categories. In that case, it’s highly recommended that you get yourself a rider in your life insurance.
Living with Parents
If you’re working plus staying still with your parents, it’s best to get a return-on-premium for your term policy. Especially if you are single and have financial responsibilities because they’re retired already.
An ROP guarantees that the maturity benefit of your insurance will be given to your parents when you’re gone. Also, the death benefit under the policy will take care of your funeral expenses, thus removing their burden..
Married
Whether it’s a single or double-income household, you should give your spouse peace of mind by paying that ROP. Make your partner financially secure and free from economic anxiety in case an unfortunate event happens to you.
An ROP ensures that your spouse won’t need to worry about getting money for your burial ceremony. Aside from being debt-free, they also get the benefits under the term life insurance policy.
Individuals with Children
You must get an ROP when you have children in the family, especially if they’re still kids. As a parent, you have to make wise financial decisions to maintain the well-being of each person in the household.
After all, a significant factor most parents consider when saving money is education for their children. An ROP is a worthy investment if you’re a parent because you get to secure and protect their future.
When Choosing Coverage for ROP
Shop around and get quotes from insurance agencies that award ROP in their life insurance. It will help you sort out which companies have better offers.
What’s more, you should be honest with yourself and receptive as much as possible when it comes to getting coverage. Ensure that you’re comfortable with the premium you will be paying for and that it suits your lifestyle.
Remember, each policy has its pros and cons, which is why you must consider how your needs will be met. There’s no need to rush when you decide to get one. Look at your budget and demands before buying insurance.
Guide to Getting ROP Life Insurance
Here’s a helpful manual when buying a return-of-premium rider on your life insurance:
- Make a list of insurance companies, then find the one with the most excellent service. Their agents will surely provide you with the best possible outcome for your life insurance.
- It’s important to choose a reputable one because some agencies don’t refund the premiums you’ve paid.
- Assess first your financial situation. After that, get a quote and compare which best fits your budget, family size, etc.
- Do some research on the internet or ask people you know with an ROP in their life insurance. It will give you an overview of its rate and benefits.
- Ask every possible question you can think of with your insurance agency. You can also ask about discounts and bundling of policies.
Final Thoughts
Return-of-premium in a term life insurance is a great investment because you can protect your family from financial ruin. Although the premiums are much higher compared to traditional life insurance, there are considerable benefits to it.
You can refund the premiums you’ve paid for if you ever outlive your insurance policy without tax. Even if you passed away unexpectedly, the death benefit will cover your beneficiaries, saving them from financial troubles.
So, make sure your insurance is the best for you and your loved ones.
If you found this article to be helpful, give the following articles a read:
- How Variable Life Insurance Works?
- What Is Whole Life Insurance?
- What is Supplemental Life Insurance, and Should You Get It?
Share this with friends and loved ones! Let them know which policy insurance is the best for them.
