Imagine paying insurance premiums for 20 years without a claim, and then getting back all of those premium dollars. If that sounds too good to be true, take a look at return-of-premium (ROP) term life insurance.
An ROP term life policy covers all bases in life. If the insured were to die unexpectedly, the death benefit provides needed protection for any beneficiaries left behind. However, if the insured were to outlive the 20-year term of the life insurance policy, the ROP product would provide personal financial options.
ROP policies are available in 20-, 25- and 30-year contracts. You pay a set premium for the length of the policy, and then at the end of the term you decide what to do with the accumulated cash from those paid premiums. You can take the money or use it to purchase a reduced paid-up term life insurance policy to age 99. While ROP premiums may be higher than traditional term policy premiums, these advantages provide valuable options.
For example, if a 30-year-old male nonsmoker buys a basic 20-year term policy for about $14 per month and receives $250,000 of protection, at the end of the 20-year period, he would have to decide to terminate the policy or begin paying a premium that will increase annually. If that same applicant pays about $44 per month for the equivalent 20-year ROP product, after 20 years, the ROP product could have a cash value of approximately $10,400. This cash value is the total paid in premiums and represents a benefit not available for the basic term product.
Consider, too, that the insured could take that cash value and convert it into over $30,000 of permanent life insurance coverage without evidence of insurability. This is particularly advantageous if the insured no longer qualifies for life insurance or wants protection without having to continue to pay premiums.
Suddenly, the increased cost of ROP doesn’t seem too adverse. Few people would be upset with receiving a check from their insurer for simply continuing to live after paying premiums for 20 years.
Days turn into months and months into years. Many individuals forgo saving money for the long term, but ROP term life insurance allows a person to have their premium payments returned in the future while also buying protection in the present.