Return of Premium Life Insurance Rider (2024)

FAQs

Return of Premium Life Insurance Rider? ›

A return of premium (ROP) life insurance rider is an optional add-on to a term life policy that, if you outlive the policy term, pays you all or some of the money you spent on policy payments.

Bottom line. A return of premium policy mitigates the risk of life insurance by returning your payments if you outlive the term. In most cases, however, you'd be better off putting the extra money you'd spend in a savings or investment vehicle, where it could grow over the term of the policy.

What is a Return Premium? Return premium, a term commonly used in the insurance industry, refers to the amount of money refunded to a policyholder when certain conditions result in the policyholder overpaying for insurance coverage.

Return of premium rider

A return of premium riders allows the family of a policyholder to collect their paid out premiums after the insured person dies, given certain conditions are met. For instance, one type of return of premium rider gives a person's survivors their premium back if they don't reach the age of 65.

Return of premium insurance builds cash value, which you can borrow against during the level premium period. You can continue your coverage beyond the level premium period on an annually renewable basis to age 95.

What are the disadvantages of ROP life insurance? ROP policies typically come with higher premiums than standard term life insurance due to the return-of-premium feature. By investing smartly, you could potentially earn more than what you'd get back from the ROP refund.

A return of premium rider typically refunds you the total premium you paid for your base policy and the ROP rider. It may not refund fees or the premium you paid for other riders on your policy. Being late on payments may reduce your refund or disqualify you from receiving one at all.

If you outlive your coverage, 100% of the money you paid in premiums during the term is returned to you, tax-free. However, if you fail to make your payments or cancel the policy, you may not get a premium refund (exact rules vary by insurer).

While the return of premium benefit may be attractive, you will pay quite a bit more for that flexibility and privilege. Depending on several factors, your premiums can be anywhere from two to five times the premium costs of other term insurance.

Return of premium (ROP) is a type of term life insurance that is about 30% more expensive than a term life policy, but it comes with a feature that some people bet on: If you outlive your term, all the premiums paid throughout the life of the policy are refunded to you, tax-free.

What is the benefit of return of premium rider? ›

A return of premium rider provides for a refund of the premiums paid on a term life insurance policy if the policyholder doesn't die during the stated term. This effectively reduces the policyholder's net cost to zero.

A Waiver of Premium Rider is an optional add-on to a life insurance policy that will waive or pay your life insurance premiums for you if you become disabled and unable to work.

Riders are optional, extra terms that go into effect along with your basic policy, often at an additional cost. Simply put, a rider provides additional coverage and added protection against risks. Insurance riders are effective add-ons you can choose in addition to your life insurance policy at economical rates.

Borrowing against life insurance can be a good option for those looking for a loan with low-interest rates, flexible repayment terms and no credit check. However, it also comes with downsides like a reduced death benefit, risk of policy lapse and significant interest accumulation.

However, most people receive around 20% of the face value on average, according to LISA. So, if we're using that 20% average to calculate the cash value of a $100,000 life insurance policy, the cash value of the policy would be $20,000.

How long does it take to build cash value on life insurance? The length of time varies by insurer, but in most cases, cash value does not start to accrue until you have paid premiums for two to five years.

Life insurance may not be worth if you have no dependents, if you have a tight budget, or if you have other plans for providing for them after your death.

Return of premium (ROP) is a type of term life insurance that is about 30% more expensive than a term life policy, but it comes with a feature that some people bet on: If you outlive your term, all the premiums paid throughout the life of the policy are refunded to you, tax-free.

If your beneficiaries rely on your income, consider a policy that lasts until you plan to retire — or until you plan to have enough in savings and investments for your family to be secure without your income.

Tax Laws Favor Life Insurance

One reason why the wealthier may consider purchasing life insurance has to do with taxation. Tax law grants tax benefits to life insurance premiums and proceeds, affording asset protection in the process. The proceeds of life insurance are also tax-free to the beneficiary.